There are two ways of looking at Broadridge Financial Solutions' acquisition of Paladyne Systems: 1) It's a blow to the buy side because Paladyne's solutions will become diluted, or 2) This will be a good thing in the long run because Paladyne will be better suited to adapt as its customers continue diversifying their revenue streams.
I'm going with the latter.
Since 2008, the buy-side community has been increasingly looking to expand into new asset classes in a search for new sources of alpha, or simply to hedge against another burst bubble. This has actually been a boon for Paladyne, which has grown quickly because of its centralizing data management capabilities, says Philip Lawton, a senior analyst at Boston-based consultancy Aite Group.
It's also important to note that—as of right now—Paladyne, while being a part of Broadridge's Securities Processing Solutions division, will continue to retain autonomy when it comes to its development schedule. As Broadridge's Charlie Marchesani told me yesterday, "We don't have any plans to change Paladyne's technology path, vision or strategy; we will maintain Paladyne as a separate business unit."
So because of Paladyne's existing suite of products, and because it will retain some sort of independence, the threat of dilution seems to be minimal.
But Aite's Lawton points out two other risks that could sink this merger. The first comes down to simple employee integration. If those key developers that made Paladyne what it is today decide to jump ship because they feel intellectually stifled, then it could lead to a slow deterioration in quality.
"The big question is whether or not the key people at Paladyne Systems will fit in at Broadridge once they stop celebrating the deal and start worrying about day-to-day life in a new environment that includes all those public reporting questions [since Broadridge is a publicly traded company]," he says.
Lawton points out, though, that Broadridge has acquired several companies throughout the years and has extensive experience pulling off these integrations.
The other area of concern is around just how fast Paladyne expects to grow. Paladyne's CEO, Sameer Shalaby, has made it clear that he expects the vendor to very quickly be able to tap into Broadridge's sales network. But Lawton says this will likely prove more easily said that done.
"It appears as though Paladyne is expecting considerable synergy from Broadridge's sales network," he says. "But purchases at sell-side firms and buy-side firms just don't travel in the same circles. A very, very effective Broadridge sales manager may not actually know anybody on the buy side. So it may take longer to prove out than what is in the Broadridge budget."
As always, we will keep an eye out for any signs of cracking.
Finally, I'd like to turn your attention to Waters' tribute to those who lost their lives or loved ones in the terrorist attacks on September 11, 2001. To all of those men and women, and those who are defending our freedom overseas, we send our thoughts and prayers.
Bryan Harkins joins to discuss how the CBOE-Bats integration is going and plans for the exchange operator going forward. Anthony and James talk about the SEC hack and Esma's potential new powers.Subscribe to Weekly Wrap emails