Local equities clearing firm FinClear has agreed to acquire the core technology assets of Dion Global’s Australia operations, as it bulks up and targets an ASX listing next year.
The acquisition includes almost 100 per cent of Dion Australia’s local assets including intellectual property, 20 staff and contracts with financial institutions. Terms of the transaction with India-listed Dion were not disclosed.
The deal, to be announced on Tuesday, covers FinClear buying two technology products including a post-trade processing system and a trading management and platform system used by planners, advisers and stockbrokers.
FinClear managing director David Ferrall said the company was tapping existing backers and would embark on a pre-initial public offering capital raise to help fund the transaction.
“As part of this next capital raise to support this acquisition and further growth, we expect we’ll look to take the business to market [the ASX] at some time in 2019,” he said in an interview.
“We think we have an opportunity, in terms of growth, to grow substantially in the next six to 12 months.”
FinClear in 2017 became the only third-party equities clearer to be admitted to the ASX in two years, as among other areas it pushed into the trading execution, clearing and settlement markets.
The company does, however, appear to be tracking behind its stated plans for profitability. Mr Ferrall had previously said FinClear wanted to be profitable in late 2018, a target that has since been pushed out.
“Our client acquisition is somewhat ahead of schedule, although in general, market conditions and [trading] numbers have been lower than projected,” Mr Ferrall added. “We may go into early next year before we are in a break-even position.”
As part of the deal with Dion, FinClear will provide software and services to two of the big four banks as well as well as a large investment bank, boutique Hartley’s, the Sequoia Group and its rival in the clearing sector Pershing.
Existing customers and partners including BNP Paribas, PAC Partners, Providence Wealth and Hobson Wealth in New Zealand. In total, FinClear counts 20 stockbroking customers on its books.
“Because we manage the entire investment cycle for our wholesale clients, from portfolio construction to trading, settlement and clearing, it makes sense for us to own the technology all the way through as well,” Mr Ferrall said.
He said the transaction with Dion “ensured the continuity” of FinClear’s technology systems and brought with it important commercial relationships with large financial institutions.
The local clearing market has been unsettled this year as FinClear’s main rival in the space, Pershing, continues a strategic review of its Australian and New Zealand operations.
Street Talk last month reported that Pershing, which is a subsidiary of American financial services company BNY Mellon, was weighing options including a sale of the local division.
Stockbroking and other firms use third-party clearers so they are not required to meet the ASX’s higher capital requirements. Clearing is the second-last process a trade goes through to confirm the buyer has money to purchase the assets and the seller owns them.