The leading supplier of trading and risk management solutions announces its acquisition of Viz Risk Management. Viz is a major provider of risk management and trading solutions to the energy markets. It focuses on electricity, gas, emission certificates, and coal. The acquisition will make Brady the largest European provider of specialist integrated trading/risk management solutions. Eventually, it could propel it into a top-six position globally based on revenues. The deal will finalise in December this year.
Funding the project
Brady has also announced a successful share placing of £15 million with both existing and new investors. It will finance the acquisition and also further increase Brady’s cash resources.
Norway-based Viz was founded in 1992. It has an established client base throughout Europe. Above all, it has long-term clients including major energy producers and traders. As a result, Viz’s Elviz ETRM will be Brady’s lead product for energy, with solutions for electricity, gas, coal, and emissions. According to Brady, Viz’s product range will combine with Brady’s existing offerings. It will work as part of the company’s “single source – single view” strategy to provide comprehensive solution sets for specialist markets. Additionally, this will ensure clients have access to a single trading and risk management solution for the whole lifecycle of all commodities.
A new step for Brady
Gavin Lavelle, Brady CEO, said, “Brady aims to be the definitive global partner of choice for trading, risk management and settlement solutions across commodities and energy products. Viz Risk Management will significantly strengthen our offerings in the energy markets. Similarly, the recent acquisition of Viveo enabled us to broaden our support for softs and agricultural asset classes, in addition to our expertise in base and precious metals.” He added, “This will be of enormous benefit to both Viz and Brady clients. Energy is an important input price into the industrial companies producing or fabricating commodities. We have a successful track record of fast and efficient integration of acquired companies. We are also confident that clients will quickly see tangible, long-term benefits from this latest acquisition.”
An opportunity for Viz to expand its reach
Frank Carlsen, Viz CEO commented, “The market sees Elviz ETRM as the market standard for European energy trading and risk management. Our close working relationships with the energy markets have resulted in Viz providing the most advanced solutions for real-time trading, pricing, analysis, and risk management currently available. Viz becoming part of Brady makes excellent strategic and commercial sense. Moreover, it provides a major opportunity to take Elviz ETRM to the wider, global energy community. We believe in Brady’s complementary solutions, geographical coverage. A strong balance sheet will help us serve our customers and accelerate our growth.”
Brady believes the acquisition has a compelling strategic and financial rationale. It will provide the company with an excellent opportunity to facilitate further growth. Moreover, it is an opportunity to extend the geographical reach of the company into Northern and Eastern Europe. It follows the successful acquisitions of Viveo, in 2010, and Comsoft in 2009. Both have “significantly grown and are performing ahead of initial plans.” Brady will now be able to offer its clients full cross-commodity coverage. They will be also able to provide integrated solutions for the entire trading lifecycle. Capture, processing, inventory, invoicing, and ultimately reporting P&L on the trades…
Brady has a strong position in the metals CTRM software space. In our yet-to-be-issued study into Non-Energy CTRM Vendor Perceptions, it is perceived as a strong challenger and a market leader in the metals space. Viz Risk Management is well-known in Europe where it ranked 13th in unprompted brand recognition in CommodityPoint’s 2009 Vendor Perception Study. It has 39 customers across Europe with the bulk of those being in Scandinavia. But it had begun to successfully move out of its Scandinavian base with deals in the United Kingdom, Switzerland, and other European locations. Viz utilizes a leasing model for its Elviz software.
In terms of increasing Brady’s size and reach, this appears to be a good deal as it adds true energy capabilities to its suite of platforms, including electric power, which is arguably the most difficult energy commodity to tackle. Elviz has not yet reached the status of being viewed as a top-tier product in European ETRM software markets. It is due to its regional presence and origins in Scandinavia, its lack of a sales force, and an overall lack of visibility in the broader European markets.
A strong customer base
Still, the company has landed a number of major customers including Statoil, Norsk Hydro, EGL, and Avenis / EOS. Brady brings an experienced sales and marketing organization. When combined with the company’s ready access to capital, it will be well-positioned to address many of these issues directly.
Additionally, there are many cross synergies in terms of installed bases that can be leveraged as commodity companies continue to trade a wider portfolio of commodities. In the short-term, CommodityPoint sees good value in the proposed acquisition for both Brady and Viz. It includes an extended commodity reach, an ability to leverage each company’s strengths, and improved economies of scale for the larger combined organization.
A leg up in the competitive stage
Upon closing of the acquisition, Brady will immediately be propelled into a top-six CTRM vendor slot. It could perhaps be even the top four in terms of revenue. On the one hand, OpenLink and Triple Point are ahead by some distance. On the other hand, this acquisition will give Brady combined revenues in a range broadly comparable to Allegro and Solarc. Brady has a strong track record of successfully acquiring other vendors and continuing to grow and strengthen their underlying business. With this latest acquisition, the company will be the largest indigenous European CTRM vendor today.
Though an important step in Brady’s evolution, the true value of this deal will most likely be realized in the medium to longer-term. No ETRM vendor can serve all of Europe’s regional power, gas, and other markets at the moment. This acquisition will do nothing in the short term to help Brady expand into the North American market. Bringing the two product families together will also pose integration challenges and increase the complexity of future product development plans.
Still, from Brady’s point of view, the company will realize a number of benefits:
- Increased quality of earnings, including a rental model, bringing recurring revenue to >50 percent
- Revenue & product diversification
- Increased asset classes/entry into growing energy market
- Increased and broadened product and market expertise
- Opportunity for earnings upside – leverage Brady’s established sales platform and cross-selling
- Furthers Brady’s strategy to become a European consolidator in a fragmented market
- Broader shareholder base and increased liquidity for investors
For CommodityPoint, this is a compelling set of arguments. We are also cognizant of the future challenges that a combined Brady and Viz may face. This acquisition will clearly provide some near-term opportunities for new business in Europe. The deal follows the company’s established pattern of what are essentially non-competitive acquisitions. Nevertheless, the geographic scope and impact of the deal will be limited.
However, we already have little doubt that Brady will be able to effectively leverage their latest acquisition. In order to challenge OpenLink and Triple Point outside of Europe, the company will need a strategy for North American markets. That could prove troublesome.
A CommodityPoint CommodityAlert
By Gary M. Vasey, Ph.D., Managing Director, Europe and AsiaPac, and
Patrick Reames, Managing Director, The Americas