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OpenLink's announced acquisition of SolArc: Views from the top

London 3 November 2011

The announcement last week that OpenLink Financial (OLF), one of the world's largest CTRM solutions providers, had entered into an agreement to acquire their sometime rival (depending on the industry segment) SolArc has created quite a stir in the market. Though we've seen a couple of CTRM vendors change hands at the investor level in the last couple of months, including Hellman and Friedman buying into OLF, this new announcement reflects the largest acquisition of one vendor by another in this space for many years, and is a combining of two of the top five CTRM solution providers.

The announcement is less than a couple of weeks old and, as one might expect, there are a number of elements to this deal that must still be worked out. Nonetheless, I did have the opportunity to engage in a bit of Q&A with the leaders of both companies, Kevin Hesselbirg, CEO of OLF, and Brad Anderson, founder and CEO of SolArc, to get their thoughts about what prompted the acquisition, the value of the deal for their clients, and whatever thoughts they could share about the future direction of the combined company.

Patrick Reames (PR): When is the acquisition expected to close?

Kevin Hesselbirg: We expect our acquisition of SolArc to close by the end of 2011, subject to legal and other regulatory approvals.

PR: What do you see as the primary synergies that can be expected from this combination of companies?

Mr. Hesselbirg: OpenLink and SolArc both share a culture and philosophy focused on delivering high quality, market leading solutions, which are customer driven; we are both focused on creating value for our customers.

Combining the shared values and talents of our organizations will enhance our ability to meet market trends including the convergence of physical and financial traded markets, and continue to develop leading solutions, such as our SmartETRM platform. This platform is designed to allow market participants to manage their operational and financial risk and the associated complexities of physical delivery and settlement from a single vendor.

Brad Anderson: The greatest benefit of the two companies combined will be the ability to provide our respective current and prospective customers an unparalleled, single-vendor solution for all of their commodity trading and risk management needs.

Combining the best-in-class capabilities of both companies' products will provide customers enhanced functionality with a lower total cost of ownership.

PR: What were the primary drivers for your company in pursuing this acquisition?

Mr. Hesselbirg: Ultimately, it is our main focus to meet client needs with a more comprehensive solution and to leverage the IP of each entity as a combined unit. The additional value of SolArc as a complementary provider furthers our commitment to our customer base. The trusted vendor reputation of both companies and newly combined offering enables us to extend the footprint at existing customers, and improve overall customer satisfaction.

Furthering that, the unparalleled R&D investment of both organizations will allow us to accelerate time to market on emerging industry concerns and important new markets, benefitting both our clients and the marketplace.

Mr. Anderson: We have always focused on driving value to our customers. We believe delivering long-term customer value is the key to long-term success. The most effective and efficient path to additional value creation was to partner with a complementary provider such as OpenLink.

SolArc's leadership position in bulk commodity physical management is the perfect match to OpenLink's market-leading position. This value is best represented by our mutual customers.

Together, we will be better able to leverage the R&D dollars the other has already spent. This creates value for the customer and the two companies combined.

PR: What's the leading value proposition for your company's customers?

Mr. Hesselbirg: As a combined entity we will have an unprecedented overview of the overall market needs and will be able to maintain a global industry level conversation with the true market leaders-our customers. We will be in an ideal position to deliver value and innovation to improve operational efficiencies while reducing risk and meeting the evolving regulatory and market changes of our combined clients.

The combined entity will also position us to invest more R&D dollars than anybody else, which will enable us to continue to transform market requirements, emerging trends, and strategies into viable, valuable, best-of-breed solutions for our clients.

Mr. Anderson: We have a number of mutual customers already. These customers will benefit from better collaboration with the two companies combined, reduce vendor relationships, and simplify systems architecture with greater overall functionality.

Additionally, a customer currently benefiting from one company's products will have the opportunity to leverage the other company's products and their capabilities. For example, many of SolArc's customers have significant operations in the electric power markets which SolArc does not support. OpenLink has a market-leading solution for power. Customers will benefit from the complementary nature of our offerings.

PR: Will SolArc's RightAngle continue as a standalone product offering in the future?

Mr. Hesselbirg: While we cannot comment on future product direction at this time due to regulatory issues, we are committed to the existing roadmaps of both companies' products.

Mr. Anderson: Yes. We are committed the existing roadmaps of both companies products. We are anticipating the delivery of our RightAngle S12 release in 2012.

PR: OpenLink and SolArc have competed for opportunities and do share capabilities (such as crude trading and physical logistics)—will there be an attempt to reconcile those capabilities/products in order to create a single CTRM product offering?

Mr. Hesselbirg: Historically we have competed on very few opportunities. We consider the merger to be extremely complimentary to both companies because we have different expertise in different areas.

Both companies/products provide best-of-breed solutions for their respective customers' needs. Historically, we've each served distinct customer needs. Again, though, we cannot make forward statements about product at this time.

Mr. Anderson: There are no current plans in place for merging the products.

PR: What role will Brad Anderson play in the combined organization?

Mr. Hesselbirg: Brad will become a valuable member of the OpenLink Management Team and continue to oversee RightAngle product strategy and customer relationships.

Mr. Anderson: I'm looking forward to taking a very active role as a member of the OpenLink management team and continuing provide guidance and direction with regard to product strategies for the SolArc product lines.

PR: Will there be an immediate combining of offices/functions between the two companies?

Mr. Hesselbirg: Our priorities are to work on customer and product issues first and foremost. We have an integration team in place who will be working through issues to determine the most efficient and effective way to deliver our products and services to the marketplace.

PR: With OLF's most recent acquisitions, the acquired companies have remained somewhat independent—is there an expectation that SolArc will continue to operate in a similar manner?

Mr. Hesselbirg: OpenLink's philosophy has been to handle these situations as mergers, being respectful of the employees, the innovation, and the products that helped create each company's success. This model results in a higher level of independence for the acquired company, which has previously not been the norm in the industry.

As with previous transactions, we will invest significantly after the acquisition. This strategy has allowed our previous acquisitions to grow dramatically.

PR: How well do the products (RightAngle and Endur) mesh technologically?

Mr. Hesselbirg: At this time, due to regulatory and legal obligations we have not been able to review each other platforms at the detailed level. However, both solution suites are built with technologies that facilitate interoperability, and we share customers who utilize the market leading qualities of both solutions already.

Mr. Anderson: Both products are built on technologies that allow for interoperability between platforms. We have many mutual customers that “meshed” our products together, and we expect to work closely with them to leverage their experience and reduce their support burden over time.

PR: This deal appears to be of most benefit to each company's banking clients—what are the benefits to the combined companies' non-banking clients?

Mr. Hesselbirg: Any of our customers engaging in both physical and financial trading activity merging logistics functionality, will benefit.

We will continue to strive to improve our capabilities through the conversion of shared vision into delivered solutions; fulfilling our clients' increasingly complex and evolving market needs—in the markets and industries we serve. This includes Banks as well as energy and agricultural companies.

Mr. Anderson: While our banking customers will see obvious benefits, we actually have more common customers outside of banking than we do within banking. Energy and agricultural customers will benefit in the much the same way as our banking customers.

PR: What is the overlap in client bases between the two companies?

Mr. Anderson: The overlap in client base is slight, approximately less than 15% of SolArc's current customer base and less than 5% when compared to the entire customer base of the to be combined entity.

PR: Does this acquisition expand OLF's market reach outside of the top tier of the market, an area in which OLF has traditionally been most successful?

Mr. Hesselbirg: All of our customers are using our sophisticated solutions in extremely complex and evolving markets.

OpenLink has never viewed our go to market approach based upon a particular tier, but rather a level of sophistication to meet their business needs. We consider all of our clients to be top tier regardless of traditional metrics for determining tier such as market capitalization or revenue.

PR: Is there advantage in this acquisition in terms of OLF's pursuit of the agricultural markets?

Mr. Hesselbirg: Both OpenLink and SolArc have been increasingly focused on improving solutions in the agricultural marketplace:

SolArc being a first mover in the wider commercial industrial section (e.g., airlines, CPG, Manufacturing) which includes agriculture

OpenLink having the largest number of customers in this space, through dbc (OLF's supply chain/CTRM solution for grain producers, traders and wholesale consumers).

Therefore, neither one of us would view this combination as a change in strategy to address this important industry group.

PR: SolArc has been a market leader in innovating data/transaction visualization. Is there an expectation those capabilities will be leveraged into Endur and the other OLF products?

Mr. Anderson: Absolutely; we expect that SolArc's experience and leadership position in the area of data visualization and usability will mature more aggressively in the combined company.

PR: Are there any anticipated synergies between RightAngle and the IRM products?

Mr. Hesselbirg: Due to regulatory and legal obligations, we're not able to discuss product specific questions at the detailed level at this time; however, both solution suites are built with technologies that facilitate interoperability, and we share customers who utilize the market leading qualities of both solutions already.

PR: Does this acquisition move OLF closer toward a public offering?

Mr. Hesselbirg: This acquisition is a new chapter at OpenLink with our new supportive owners. As demonstrated by our recently completed transaction event with Hellman & Friedman, OpenLink has never had a problem attracting investor interest in our growth platform and our vision for the marketplace.

An IPO is just a different variation of a financing vehicle and we would make a decision on that step if it made sense to so do it. At this point in time, we have no plans to pursue new capital investors.

CommodityPoint's View of This Transaction

With limited client overlap, there should be little pressure from the combined company's customer base to merge the Endur and RightAngle product lines, allowing OLF to continue to operate SolArc as a somewhat independent entity, much as they have with the IRM and dbcSmart acquisitions. While on the surface this strategy would seem not to create great operational efficiencies, experience has shown that attempting to force-fit and merge acquired E/CTRM technologies into a singular product line has rarely, if ever, yielded significant positive benefit; in fact, such strategies generally lead to increased customer dissatisfaction and significant loss of clients for the merged entity.

In our view, the greatest benefit of this acquisition will be a sharing of knowledge and experience between the two companies. Each has a long history in this market and has developed market leading capabilities—OLF in the areas of multi-commodity trading, risk management and analytics, and SolArc in the area of bulk commodity trading and logistics. The ability to leverage capabilities and resources across the two platforms should ultimately create ever improving offerings from both, enabling the combined company to win new clients that individually they might have otherwise lost to their competition.

Ends --

By Patrick Reames
Managing Director, The Americas, CommodityPoint