First Derivatives to Buy Bankrupt Cognotec
February 3, 2010
First Derivatives today emerged as the buyer for Cognotec, the bankrupt Dublin- based foreign exchange software firm.
Terms of the deal were not disclosed but sources close to Cognotec say that Cognotec’s receiver KPMG in Dublin had given potential suitors until Friday to cough up an all-cash bid or KPMG would shut Cognotec down.
Last week, KPMG was appointed as receiver last week by Barclays which was owed about $9 million from a $12.5 million loan advanced in 2006. Launched in 1991, Cognotec’s largest shareholder is its founder Dublin-born entrepreneur Brian Maccaba, who sources say is no longer with the firm and now lives in London.
First Derivatives, based in Newry, Ireland said that it will make a "significant investment" in the Cognotec product portfolio, which includes RealStream, a suite for managing FX margins, rates and liquidity, as well as AutoDeal+, an FX pricing and execution engine. First Derivatives, which specializes in market data management and algorithmic program trading software, did not disclose what would happen to Cognotec’s 65 employees, 40 of which are based in Dublin. The remainder are in London, New York, Toyko and Singapore.
“First Derivatives will extend Cognotec’s product and service capabilities significantly, through increased investment in R&D, together with the gross pollination of intellectual property and expertise in capital markets,” said Brian Conlon, chief executive of First Derivatives in a statement. Officials at First Derivatives were unavailable for further comment today.
Founded in 1996, First Derivatives has made several acquisitions recently and now employs 400 people worldwide. In October it bought New York-based reference data management outfit the Reference Data Factory for an initial $2.5 million in cash, with an additional $7.5 million reserved for earn-out provision. This followed a deal to take a 15 percent interest in analytical database vendor Kx Systems.
It remains to be seen how many of Cognotec’s customers will remain with the firm. Cognotec rival Integral in Mountain View, Calif. is offering Cognotec’s clients who switch their business to Integral before March 31 free help in migrating to Integral’s ASP service. Integral will also deduct the remainder of the value of their contracts with Cognotec from its fees.
“We did take a look at buying Cognotec’s assets but didn’t find its technology up to par with ours,” Harpal Sandhu, Integral’s chief executive told Securities Industry News.”Our FX Power Trader offers more functionality than Cognotec’s RealStream and our combination of FX Grid and FX Inside Professional can easily replace every other product in Cognotec’s arsenal.”
Sandhu said that so far six of Cognotec’s customers have expressed an interest in taking up Integral’s offer. Of Integral’s 240 customers about 40 percent are in the U.S. and the remainder are based abroad. Its client base banks as well as institutional and retail brokers.
At the height of its financial success during the Internet boom, Cognotec was valued at $300 million and it won about $60 million in venture capital funding. But it has suffered some major financial losses over the past few years. Cognotec said that it had slashed its pre-tax losses from $9.9 million in 2007 to $1.76 million in 2008. However, its cumulative losses came to over $40 million and it struggled to generate sufficient cash flow to service its debts. A report from the company’s auditors attached to its financial statements also expressed uncertainty about whether Cognotec’s reported figures were valid.
