Highlights:
- Enfusion concentrates on the front office, the area of a financial institution that oversees customer-facing operations, whereas Clearwater sells software for middle and back-office staff.
- It is anticipated that the deal will open up new avenues for income growth. According to Clearwater, Enfusion will allow it to enter the hedge fund sector, increasing its total addressable market by USD 1.9 billion.
Clearwater Analytics Holdings Inc. acquired Enfusion Inc., a financial software developer, for whopping USD 1.5 billion in cash and stocks.
The price of the offer is USD 11.5 per share. That represents a 32% premium over Enfusion’s closing price on September 19, the day before the transaction was made public. Clearwater Analytics intends to use cash on hand, a loan of USD 800 million, and newly issued shares to finance the transaction.
The front, middle, and back offices are the three divisions of organizational structure in financial institutions. Brokers and other staff members who interact with clients are part of the front office. In a number of ways, the middle office assists the front office, including by making sure trading orders handled by brokers don’t include excessive financial risk. Data entry and accounting are among the administrative duties handled by the back office.
Based in Chicago, Clearwater provides middle and back-office teams with a cloud platform. To make processing easier, the program can compile information about a financial institution’s investments into a single repository. Every transaction log that Clearwater ingests is examined for data entry errors, including duplicate fields, accounting irregularities, and other problems.
Users can create reports once the company’s platform has prepared financial records for processing. Compliance teams can use those reports to monitor how well their organization complies with industry standards. The capability can then be used by investment experts to track information like the amount of capital invested in a certain asset.
Enfusion concentrates on the front office, the area of a financial institution that oversees customer-facing operations, whereas Clearwater sells software for middle and back-office staff. Brokers conduct customer trade orders using Enfusion’s eponymous cloud platform. Additionally, the software allows for the creation of investment strategies, performance evaluation, and trade tracking.
Enfusion is also engaged in the mid-office sector, one of the markets where Clearwater competes. It offers managed services that allow employees of financial institutions to delegate various mid-office duties.
Clearwater intends to integrate its middle and back-office solutions with Enfusion’s front office platform. Historically, there were issues with information quality due to the error-prone nature of data synchronization across such products. In order to solve this problem for customers, Clearwater and Enfusion intend to integrate their respective product ranges.
It is anticipated that the deal will open up new avenues for income growth. According to Clearwater, Enfusion will allow it to enter the hedge fund sector, increasing its total addressable market by USD 1.9 billion. Additionally, the business sees a chance to increase its global sales: 38% of Enfusion’s income comes from Europe and Asia, while 18% of Clearwater’s top line comes from customers outside the United States.
Within two and a half years of closing, Clearwater anticipates that the deal will unlock USD 20 million in annual savings. Within two years, those cost reductions will contribute to an 8% improvement in the company’s adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margin.
“Coupled with our operating rigor and use of generative AI, we have high confidence that we can drive meaningfully improved unit economics at Enfusion while also growing its emerging managed services business,” said Clearwater Chief Executive Officer Sandeep Sahai.
The transaction is anticipated to be completed by Clearwater in the second quarter.
