Albuquerque, New Mexico, 21 January 2010

The CTRM product landscape has always been somewhat fractionated, with a large number of product vendors servicing component process of the commodity trading value chain, or in some cases, specific processes associated with a single commodity.

Others, those generally regarded as the "Big 5", have gained their market leading positions by providing multi-commodity solutions that, while not addressing all the business processes associated with all commodities, do address a large portion of the functionality required by the largest energy and commodity trading operations around the world. Traditionally, most have focused more on the financial trading side providing straight through processing for paper trades while offering some degree of functionality for the physical trading but perhaps lacking operations and logistical management for physical trading.

Those five (Allegro, Solarc, SunGard Energy and Commodities, Triple Point Technology, and OpenLink Financial) have traditionally fought one another for the largest deals around the globe, the multinational merchants, traders, and producers of energy and non-energy commodities. While each of these vendors offer a somewhat unique blend of functional and commodity coverage, each has been successful selling products that provide physical and financial deal capture, position management, risk management, and settlement/accounting. However, rarely have the products from these large vendors been deployed in isolation. Indeed, in almost all cases, customers who have bought these systems have also licensed additional third-party components to address specific functional gaps that are not addressed in the larger CTRM systems. Many of these gaps are associated with logistical complexities of specific commodities or region/country-specific market requirements.

The large vendors have obviously recognized those functional gaps (and the revenues lost to smaller vendors) and have, at times, attempted to close them through internal development, generally in cooperation with a client or group of clients who could supply commercial support and business expertise to the development process. However, within the last couple of years, many of the "Big 5", including Solarc, Triple Point, and OLF, have sought to build out their product capabilities via the acquisition of smaller companies whose products provide specific functional capabilities, or coverage of additional commodities. These acquisitions have brought functional products, established clients, and the business and technical expertise that was not readily available in-house. These deals have allowed the vendors to quickly expand their market coverage, increase their revenues, and gain some competitive advantage against the competition.

In fact, this trend toward acquisition has been accelerating, with just this week, two of the "Big 5" vendors, Triple Point and OpenLink announcing new acquisitions.

Triple Point's most recent announcement is, in fact, their second in as many weeks. Last week they announced the acquisition of Softmar, a Geneva based developer of solutions for shipping and vessel operations. The new deal announced this week, Enerbility Software GmbH, a Vienna based company, will provide Triple Point's European Commodity XL clients with improved back office capabilities via Enerbility's market communications solutions. Additionally, this latest acquisition brings with it additional European market expertise and a client base that includes Alpiq AG, E.ON, Statkraft, Verbund APT, BKW FMB, and Vattenfall Energy Trading Netherlands NV (formerly N.V. Nuon) among others. These two recent acquisitions are the fourth and fifth for Triple Point in the last two years, as they had previously picked up CoralSoft (solutions for precious metal trading), Rome (credit risk management), and Inssinc (hedge accounting).

OpenLink announced this week that they have acquired dbc SMARTsoftware, Inc. (dbc), a global provider of software solutions for the agricultural, biofuel and soft commodity industries. dbc's product, SMARTsoft, is a "value chain" management software suite for "producers, processors, manufacturers and traders who buy, sell, hedge, warehouse, merchandise, export, and transform commodities into value-added products and by-products for distribution". According to OpenLink, dbc's product have "hundreds of installations in sixteen countries", providing OpenLink the opportunity to sell additional solutions into markets they had not previously served. This is OpenLink's third acquisition in about two years, with the company having previously acquired European based IRM (generation asset management) and an interest in MCG (North American power market solutions).

CommodityPoint has observed the changes taking place in commodity markets; trading a more diverse portfolio of commodities, new and changing relationships amongst commodities and the growing desire to assess the profitability and risks of a trade through its entire value chain including such things as cost of storage, transport, credit exposure and so on. These trends in the industry have been incorporated into the buying criteria of those seeking CTRM software and the vendors have had to and will continue to need to respond.

CommodityPoint has been consistent in our belief that this consolidation of vendors will continue, with the largest vendors in the market acquiring smaller players in order to expand their product capabilities and their market reach. Given the more than 80 vendors that we've identified (and listed in our online directory of CTRM vendors at www.trmdirectory.com ) that service some or all of the commodity wholesale supply chain, the larger vendors can be selective in pursuing the right acquisition targets, finding those "specialty" vendors that can provide a quick return and whose products dovetail with their own, allowing them to create a solution that provides not just those functions and capabilities needed by the majority of the market place, but can also address the unique needs, particularly around logistics, that are required to address the entirety of value chain of each individual commodity.

Despite the obvious appeal of acquiring additional functionality, these deals do come with a significant burden and risk for the acquiring company - each new acquisition must be successfully integrated, in terms of technology, organizations and clients, into the acquiring company's business. In the end, the real determinate of success is not who can buy the most companies and sell the most functionality, it's about who can buy the right companies and can effectively manage the integration of those acquisitions in order to create the greatest value for the market and in turn, the acquiring company and its shareholders.

Ends --

By Patrick Reames, 
Managing Director, UtiliPoint® International, Inc., The Americas

www.utilipoint.com