£572 million sale of fund administrator GlobeOp to SS&C close to completion

The sale of hedge fund administrator GlobeOp Financial Services to SS&C Technologies, a Carlyle-backed financial services software business, now seems almost inevitable.  The deal will place the combined GlobeOp/SS&C third (up from 6^th and 9^th respectively) in a competitive hedge fund administration sector behind Citco and State Street, and will see Citco and GlobeOp as the only two non-bank-owned players in the top 10.  The fact that independent companies will sit in the number 1 and number 3 spots in a market otherwise dominated by global banks is evidence of the fact that there is a considerable appetite for services from specialist independent businesses who can maintain clarity of core focus and independence from on-selling of products. 

SS&C has offered £572 million (£4.85 per share) for the GlobeOp business, trumping an earlier offer by TPG of £4.35 per share, which valued the company at £508 million.  The TPG offer had received acceptances from more than 40% of the shareholders, represented a premium of almost 50% to the early January share price, and the acquisition was widely expected to be completed before the arrival of SS&C’s materially higher counter-offer.   SS&C’s offer has now been declared unconditional, and they have received valid acceptances in respect of approximately 76.8% of shares.

SS&C believe that some of the big investment banks will withdraw from the alternative fund administration market due to pressures to focus on core activities, despite the strong growth prospects for the industry, and are therefore looking to become a consolidator in that market. 

GlobeOp Financial Services was founded in Luxembourg in 2000, primarily by a group of alumni of Long-Term Capital Management (LTCM), a well known hedge fund that had collapsed in 1998, to offer outsourced middle- and back-office and administration services for hedge funds. At the time, most hedge funds, particularly in the United States, were self-administered and the independent fund administration industry was therefore very small, and focused principally in offshore territories.  

However, GlobeOp effectively bet on the fact that this dynamic would change over time, and they were proved right. Although hedge funds are still not required to outsource their administration to third party administrators, there is an increasing tendency to do so because of the importance of transparency, the increasing complexity of regulatory compliance and the desire to show investors the existence of third party checks and balances from a risk management perspective.

Given the strong double digit revenue growth that many are forecasting for the hedge fund administration sector over the coming years, buying scale in the industry now could be considered a shrewd move. 

However, the deal is not all about pure industry growth potential – it is also believed to factor in a significant level of cost savings: GlobeOp has a large Mumbai-based operation which materially lowers its cost base, and SS&C will doubtless be looking to take advantage of that structure for its existing client base.