The banker winces and shifts uncomfortably in his seat. He has just been asked about service standards at Fidessa, following the trading technology vendor’s $1.9 billion acquisition by Ion Group last year.

“We’re lucky we implemented the software when we did. They’ve become a little bit slower to deliver on some of the things they promised,” he says, choosing his words carefully. Then he pauses and offers his explanation for the dip in standards: “They have fewer people.”

That’s putting it mildly. According to multiple estimates, roughly a quarter of the workforce has left the UK-based company since the deal went through—roughly 400 people, though it could be more. Some were made redundant—Ion CEO Andrea Pignataro had made no secret of his plans to wield the axe—but the majority simply walked away, citing a three-month delay in the payment of 2018 bonuses, or a growing distrust of the new owners. (See box: The Bonus Issue)

So it goes with acquisitions, of course, and one New York-based analyst—a long-time observer of Fidessa—argues the company was “bloated.”

But now some customers are starting to complain.

A second Fidessa user says the post-deal departures have claimed “close to 100%” of the people his bank had previously dealt with, resulting in a breakdown in communications and service quality. He gives the example of a recent patch release—the bank had not been told in advance—that had an impact on some of the bank’s own customers.

The fact we lost a major layer of relations between the firms as a result of this attrition over the last six to 12 months—I think that has essentially caused this lack of transparency around releases.

Fidessa customer

“When you are dealing with a whole set of new people who are in charge of managing the clients, who don’t know the clients, don’t truly understand the relationships yet, don’t even have the ability to properly navigate through their own firms yet, you’re going to get hit on two ends. First, the people themselves probably don’t know the information they need to know and, second, they’re not as capable of communicating upwards what is told to them. So the fact we lost a major layer of relations between the firms as a result of this attrition over the last six to 12 months—I think that has essentially caused this lack of transparency around releases,” he says. 

And he repeats the claim that Fidessa has become less able to react to customer concerns, reporting “an absolutely clear drop in terms of reactivity to client-specific issues. … It seems like they’ve lost the ability to distinguish between a general issue and an urgent issue that needs to be resolved because it’s putting our clients at risk. We’ve had some issues that have been sitting with them for months.”

Ion was warned of the danger. In July, during a round of redundancies in the UK, Fidessa staff who had been appointed to represent their at-risk colleagues wrote to management, stating that clients were already complaining of degradation in the quality and quantity of service, and that the scale of the departures was affecting morale and delivery. “Further redundancies will worsen the situation,” the letter said.

In the end, 70 UK roles were eliminated of an originally planned 80, continuing the exodus that had started months earlier.

Any dips in service may ultimately be short-lived squalls—a side-effect of Ion’s attempts to knock Fidessa into the leaner, meaner shape it wants—but some users of the software are bracing for a storm. 

WatersTechnology can reveal that Ion has already revised Fidessa’s standard contracts, extending the length from two years to a minimum of three—with discounts on offer for clients who sign up for five or seven years. The contracts are understood to include new features that limit Ion’s liability. Customers who sign will also agree not to withhold payments if the service deteriorates.

“I do expect those conversations to get a little ugly,” says the second customer. “Fidessa’s obviously a leading system on the Street, so there’s no question [Ion] will be looking to further monetize it.”

If the conversation gets too contentious, the user says his firm will push back, and may ultimately switch the vendor off: “We’ll explain to them that they don’t have as much leverage as they might think. They will either buy that or they won’t, and then it’ll put us in a position to either say we’re good and will continue to move forward, or that we’re going to be looking at alternatives.”

All of this is familiar to the New York-based analyst. Ion has grown through acquisitions, with some of these deals seen as a chance to give the target an aggressive makeover. The bet may be that customers would rather endure these brief ructions than try to replace the technology. 

“Ion has always believed the only way to find what is intolerable is to step over the cliff edge. They have found they always can step back and recover—or indeed discover a ‘new tolerable,’” the analyst says.

Customer service and satisfaction have improved—that’s a fact.

Domhnall McCormack, Ion Markets

To tell the story of the stresses now facing some Fidessa users, WatersTechnology spoke to 16 current and former Fidessa employees, as well as 18 people from other companies that were acquired by Ion, clients of companies that use Fidessa and other Ion-acquired platforms, and various other industry participants. 

Ion insists any service issues are not widespread, and internal metrics appear to bear that out—at least partially. Between October 2018 and August 2019, issues relating to platform stability are down 27%, while those relating to software quality are down 18%, according to internal KPIs that Ion released to WatersTechnology.

In an effort to stay ahead of the curve, meanwhile, some of Fidessa’s staff savings will be ploughed back into research and development (R&D), Domhnall McCormack, Ion Markets’ chief operating officer, tells WatersTechnology. As an example of rapid innovation, Fidessa recently released a product designed to fill the gap created by Bloomberg’s exit from its Sell-Side Order and Execution Management System (SSEOMS) business. 

“Customer service and satisfaction have improved—that’s a fact,” McCormack says.

From Startup to Entrenched

Fidessa matters because the system is part of the fabric of the global equity markets. At the beginning of 2019 the company claimed its suite of products was used—in varying capacities—by 85% of the world’s tier-one financial institutions. Its trading network connected 6,300 brokers and investment managers, and was processing more than $26 trillion worth of transactions each year. 

It services a range of needs, from custom enterprise solutions—such as analytics tools, market data services, and multi-asset trading capabilities—to a fully-hosted, end-to-end trade lifecycle management platform. But it is best known for its order and execution management system (OEMS) and global connectivity solutions.

“Fidessa is certainly a leader in the sell-side EMS space,” says Brad Bailey, research director for consultancy Celent’s capital markets division. “I don’t know where we draw the line, but they’re particularly strong in futures, options and equities.” 

Ion is one of the major owners of trading solutions, especially in fixed income. So the Fidessa acquisition gives them a lot of touch points into the sell side with—potentially—a very cross-asset offering.

Brad Bailey, Celent

This is seen as one of the reasons for Ion’s interest; the firm’s prior portfolio of products was strong in the fixed-income markets, with equities a relative weakness. The Fidessa deal positions it to become a one-stop shop, with Bailey reporting “tremendous demand” for this kind of multi-asset service, particularly from cost-constrained sell-side banks.

“Ion is one of the major owners of trading solutions, especially in fixed income. So the Fidessa acquisition gives them a lot of touch points into the sell side with—potentially—a very cross-asset offering. They’re now a major force across several key asset classes,” he says.

If market participants buy that pitch, they may be able to reduce the number of vendors their trading businesses depend on—and, potentially, the all-in cost. But they will also be relying more heavily on Ion. And the services they buy from the fast-growing fintech conglomerate can’t easily be switched off or replaced. 

This is deliberate, says a senior technology executive at a tier-one bank: “They’re strategic in their acquisitions in that they look for products that are seen as being entrenched.”

Out the Door

The big question, in Fidessa’s case, is “how entrenched?” If users suffer during the restructuring of the company, at what point does the frustration of staying put outweigh the toil of moving on? 

The first departures from Fidessa came early last year, once it appeared likely the company would be acquired, but they picked up pace this year.

In April, Financial News reported that Pignataro intended to cut as many as 660 jobs across both the Ion and Fidessa workforces to remove overlaps and reduce annual costs by $50 million. The firm also insisted it would retain the “best talent,” including senior managers, according to the report. 

Of the 400 or so employees who have left, most have been resignations—about 300, according to sources—and many were long-serving members of the team that helped make Fidessa a London fintech darling. The remainder were laid off.

According to an internal note from December 2018 seen by WatersTechnology, Fidessa’s headcount at the time was 1,589, including 20 contractors. 

All of the Fidessa sources interviewed for this article are or were, at minimum, managers. Of the former employees, all voluntarily resigned. Each had their own reasons for leaving, but they echoed one another on several key issues, including lapses in the payment of bonuses, a lack of direction for the business going forward, and an increasingly unhappy workplace—the net results of which might be burdens that Fidessa’s users have to shoulder.

One of those leading the restructuring of Fidessa is McCormack, who joined Ion in July 2018 after a near 12-year stint at UBS. He held a number of senior roles at the Swiss bank, finishing as global head of technology for foreign exchange, rates and credit (FRC). He could “get shit done,” says a former UBS employee, who worked under McCormack.

As head of FRC technology, McCormack was responsible for about 750 staff. He also oversaw the bank’s relationship with Ion and its products. During the Mifid II period, the former UBS employee says, Ion was not delivering particularly quickly. To that end, “Domhnall was the man you could wheel in there, and he really would kick ass.”

“It’s quite ironic that he’s now jumped the fence, and he’s on the other side,” the source adds. “I guess that’s one of the attractions for [Ion]—they saw he was quite combative when it came to getting stuff done and getting tough projects out the door.”

At Ion, one of those tough projects has been the Fidessa deal. In July’s redundancy process, McCormack was the one responding to employee representatives. The process kicked off with a letter informing the reps that around 10% of Fidessa’s global workforce would be made redundant—80 roles were at risk in the UK—because “operating synergies” had been identified. Though the bulk of Fidessa’s staff is UK-based, WatersTechnology could not confirm how many redundancies were ultimately made in other locations. 

In a July 9 response, employee representatives argued that because about 100 people had already left the business since mid-April 2019, “you appear to have substantially achieved your requirement for the headcount reduction.” 

The letter added that clients were already complaining that service was suffering, and that the number of departures was affecting morale. 

“There is evidence (e.g., clients complaining about degradation in the quality and quantity of service), that the recent attrition in numbers will have a deep and lasting adverse effect on the company’s (former Fidessa) performance and perception in the market place. Employees have examples where the number of staff who have left is already creating bottlenecks and affecting morale and delivery. Further redundancies will worsen the situation,” the letter said.

One former senior manager who worked in development shares that perception: “It makes it incredibly difficult to succeed at what it is you need to get done, because you’ve lost the people, you’ve lost the experience, and the net result is you’ve got very little chance of success.”

The back-and-forth continued throughout the month, in letters and meetings. Representatives suggested alternatives to redundancy, such as part-time and job-sharing arrangements, voluntary redundancies, or retraining and redeploying staff. Management responded that redeployment may be considered on a case-by-case basis during upcoming consultations, but that the other options were “not practical.”

In two documents dated July 11 and July 17, reps expressed concerns that the process and management itself were too opaque, that at-risk individuals had been predetermined—which would be against UK labor law—and that they had not seen evidence of what exactly defined the businesses’ “synergies.”

McCormack assured reps that a standard process was in place across the entire group, which he said worked well and was not rushed. 

“Employee representatives will always express concerns, and that’s part of their job,” McCormack says. “But we were very transparent with them. And in the end, there was general satisfaction with the process.”

By July 29, 90% of at-risk meetings had been completed, McCormack said in a document with the same date. The meetings had begun three working days earlier, on July 24, and first dismissals were slated to begin on August 7. 

But it wasn’t just about the leavers. At one point in the process, employee representatives claimed there was “widespread concern amongst staff that the criteria laid [at the beginning of July] do not stand up to scrutiny and as such are unfair and arbitrary, opaque, contrary to the legislation and guidance … [and that] to continue down this route risks creating suspicion and disquiet amongst the 90% of employees to be retained.”

Because disgruntled employees may give a slanted view of the inner workings of a company, WatersTechnology sought a wider sample of views—and a comparison with other big, fintech firms—by analyzing staff satisfaction scores on employer review site Glassdoor.com. (See “Notes” at the bottom of the page.) The average score for a selection of 15 trading tech peers of Ion and Fidessa was 3.7 out of five. Fidessa scored 2.6; Ion averaged 2.4 (it has two entities on the site).

Because Ion has grown through acquisitions—and serial restructurings; Ion Group, as a whole, has over 7,000 employees—its score may be dragged down by a disproportionately large number of former employees.

Story continues after “Timeline”.

The Writing on the Wall

Keeping sufficient talent within the company will be crucial to Fidessa’s users. Ion’s existing expertise is in fixed income, commodities and FX; Fidessa specializes in equities and derivatives trading. Sources say that if enough institutional knowledge walks out the door and is not adequately replaced, support for the equities product will drop off. 

A former developer at Fidessa believes the quality of the firm’s software has remained largely unchanged since the acquisition—for better or worse. But, the developer says, “I don’t think there has been much time for such things to change.”

“Going forward, taking into account the recent attrition, I do think certain areas will start to suffer, and they might find it harder to maintain the quality and support customers have come to rely on,” the developer adds.

This is where the new contracts may come into play. Fidessa’s previous standard contracts ran for 24 months, with 12-month rolling periods, meaning a client could cancel at any time within 90 days of the two-year mark, but past that, the contract automatically rolled over for another year, and so on. Per Ion’s restyling, contracts will now be offered on fixed three-, five- and seven-year terms, with discounts offered for signing for longer timeframes, three sources with knowledge of the restructuring say. Now, if a client signs a three-year deal, they are tied in for three years, but if no cancelation is made within 90 days of the three-year mark, the contract automatically renews for three additional years. Another key change is that payment must now be made annually in advance, as opposed to the former quarterly model. 

In addition, Fidessa’s liability is subject to a cap, and any invoices issued in accordance with the contract must be paid without any “fees despite” mechanism—a term Ion uses—meaning “if you sign for seven years and the service goes down the toilet over time, then you can’t withhold payment as a means of protest or recompense,” says an ex-Fidessa employee who worked in sales.

This is a common feature of the deals Pignataro has closed at Ion, says the New York-based analyst.

“He rewrites contracts with existing clients and is not happy if it does not involve brinkmanship—otherwise, he has not found his optimal position,” the analyst says. “He rigorously extracts additional and new economic benefits from existing contracts from his whole ecosystem.”

It may result in friction with some users, but the strategy is intended to find the frontier at which Ion’s stakeholders extract most value, while ensuring the company continues to function. Private equity firm Carlyle Group took a stake in Ion in 2016, a deal the analyst sees as a natural fit: “Pignataro is a scientific, unemotional businessman. Private equity loves him.”

A Balancing Act

Redundancies and strategic changes are natural after any acquisition. And Pignataro made it clear that Ion would look to trim the workforce in order to make Fidessa more efficient and to help better integrate Fidessa’s offering within Ion’s stable of services.

Virginie O’Shea, a research director at consultancy Aite Group with experience in tracking financial technology developments in the capital markets sector, says there’s no “right way” to conduct an acquisition, but the most successful combinations should share some characteristics, such as similar technology stacks and the firms’ DevOps strategies. 

“The dangers posed by acquiring a small firm into a much larger one is that the firm’s staff no longer feel in control of their product development roadmap—feeling like a cog in a machine—and therefore they leave, and the firm loses intellectual capital,” she says.

Execution risks are also flagged by Dirk Goedde, an analyst with Moody’s Investors Services—but only in the generic sense. He sees the Fidessa deal as a “good strategic shift” and notes that Ion has completed deals worth a total of around $7 billion in the past decade, so the firm has significant experience at acquiring and integrating new companies. 

At the time of the deal, Ion Trading held a B2 credit rating from Moody’s. In early September, Moody’s downgraded the rating one notch to B3—placing it in the middle of the speculative grade segment. One trigger for fluctuation in a Moody’s rating, says the analyst, is how much leveraged debt a company has. 

“That was one of the reasons why we decided to downgrade the company,” Goedde says. “The deleveraging was slower than our expectations from the initial acquisition in 2018. [Another] precursor was it was weaker than we expected as the company had performed dividend payments.”

‘We Want Them to Step Up Their Game’

Fidessa was founded in 1981 as Intercom Data Systems—later renamed royalblue group—and the platform it sold was known as the Fidessa multi-asset trading platform. After the 2007 acquisition by royalblue of LatentZero, the combined entity became known as Fidessa due to the brand equity built through the OEMS. It was a four-decade slow burn for the company, but it has since become entrenched in equities and derivatives, thus what made it so appealing to Temenos and then Ion.

Whether the platform continues its decades-long rise will hinge on how employees react to changes being made inside the company, and how customers react if the service changes.

In speaking to WatersTechnology, the second Fidessa user is reacting already.

“We definitely want to see them challenged. We want them to step up their game. We believe they have the ability and the resources, and they do have a level of talent and capability there, so we want to see them challenged to do that. We also want them to know it’s not safe to assume—just because you acquire the number one vendor solution in this space—that things will stay that way. You have to maintain a certain service level,” the Fidessa user says.

These things are like a tanker, aren’t they—it will take a while for the tanker to stop. Or, maybe it never will. Maybe these guys know what they’re doing and everything will just carry on working with less cost and everyone will be happy.

Former Fidessa employee

And one former long-time senior manager says clients are right to be anxious.

“I think it’s a bit intangible right now because the service is still functioning for them, so they’re not necessarily seeing a day-to-day impact at the moment. These things are like a tanker, aren’t they—it will take a while for the tanker to stop. Or, maybe it never will. Maybe these guys know what they’re doing and everything will just carry on working with less cost and everyone will be happy. But I think the evidence is that’s not the direction of travel.”

The story of Fidessa, on one hand, is measurable, hinging on numbers and figures, dollars and percents. The flip side is less tangible, and maybe most important: It’s also a story about culture, people and the ways things change—almost imperceptibly at first, but then, all at once.

–—
Notes

Glassdoor scores: 
Fidessa: 2.6 (326 reviews)
Ion Group: 2.1 (138 reviews)
Ion Trading: 2.5 (272 reviews)
[weighted average: 2.4]

Axioma: 4.2
Calypso: 3.3
Charles River: 3.3
Eze Software: 3.4
Factset: 3.8
Finastra: 3.9
FIS: 3.5
FlexTrade: 4.4
IHS Markit: 3.4
Linedata: 3.6
Murex: 4.2
Numerix: 3.4
SimCorp: 4.0
SS&C Advent: 3.5
StatPro: 3.0

Average: 3.7

* Source: Glassdoor.com. Data current as of October 31, 2019