D.he Japanese electronics company NEC is entering the field of financial software and is taking over the Swiss service provider Avaloq GmbH for 2.05 billion francs (1.9 billion euros). Avaloq supplies around 150 banks, primarily in Switzerland and Europe, with software and cloud-based solutions, for example for asset management. Customers include Deutsche Bank, Barclays and HSBC. The sellers are the holding company Warburg Pincus, Avaloq founder Francisco Fernández and employees. Warburg Pincus acquired a stake in Avaloq in 2017 and most recently held 45 percent. The deal is expected to close in April next year.
With the expansion into financial software, NEC is looking for new growth areas. The company has sold uneconomical departments like semiconductors, computers, and cell phones over the past decade. In 2018 and 2019, NEC acquired the British company Northgate and the Danish company KMD, which offer software for the digitization of public administration. Avaloq should offer synergies here.
NEC wants to combine its knowledge of biometric security systems and artificial intelligence with the purchased offers and open up markets such as Japan for Avaloq. With 2,300 employees, Avaloq generated record sales of 97 million francs in 2019 and posted a loss of 29.8 million francs, including through investments in data centers. The purchase price is roughly twenty times adjusted earnings before interest, taxes, depreciation, and amortization, and reflects NEC’s hope for double-digit adjusted Ebitda growth.
Avaloq is struggling with its core banking system on the German market. In 2016, BHF-Bank canceled the long-prepared introduction of the Avaloq system shortly before the planned introduction. However, Oddo did not question the Avaloq Banking Suite as a solution, but rather “set the priorities for BHF Bank differently”, Avaloq said at the time, while Oddo gave no reason, although Avaloq had been stuck with for weeks.
The new showcase project is now the pharmacists and doctors bank (Apobank). But this largest German cooperative bank has been struggling with persistent malfunctions since the introduction of the Avaloq system at Whitsun 2020.