Exegy, Vela merge; say scale will fuel further acquisitions

Hardware ticker plant appliance vendor Exegy and low-latency datafeed and execution software vendor Vela Trading Systems have closed a deal to merge under the Exegy brand, which will see the companies integrate their hardware and software solutions, expand their trading-related offerings to new asset classes, and potentially acquire other companies, officials say.

The deal is backed by private equity firm Marlin Equity Partners, which has taken over Newspring Capital’s ownership of Exegy, and Insight Partners’ investment in Vela. The parties did not disclose the financial terms of the deal. The timing of the deal was driven by the fact that these existing investors were reaching the end of their holding periods, says Exegy CEO Jim O’Donnell.

An early win for the vendor will be leveraging Exegy’s hardware appliances to accelerate some of Vela’s software services. “The Exegy products have always been a hybrid of some hardware and some software, while Vela has always been a software product,” O’Donnell says. “We’ll put hardware into their solutions where it makes sense to become a hybrid product.”

But O’Donnell says the moves aren’t about synergies.

“It’s about scale. Our large customers want to do business with larger companies,” says O’Donnell, who will serve as CEO of the merged company, while Vela CEO Jen Nayar will assume the newly created role of chief integration officer. “We’ll have more scale and a fuller, more tightly integrated product line. We like our competitive position among the companies we’ve been competing against for the past 10 years,” he says.

Bob Iati, managing director of TP Icap-owned research firm Burton-Taylor International Consulting, says scale is “a critical weapon for managing the massive amounts of data typical of financial institutions,” along with the flexibility to offer choices between hardware and software solutions.

“Today’s trading institutions are large and complex, typically dealing in multiple asset classes simultaneously in markets around the world. For them, staying ahead of the competition means they need to leverage tools that can optimize execution in each specific market,” Iati says. “Depending on the task at hand, the form of that tool may come in software or hardware, or may launch from automated signals or from more subtle or nuanced triggers. Market data technology that offers flexibility to identify the best opportunities are in great demand.”

That scale—and the commitment from Marlin Equity Partners to provide further investment where needed—will also allow the merged vendor to pursue other acquisitions where it sees an opportunity to add capabilities and value.

“Vela’s acquisitions of its direct market access and the Metro platforms set us on the path of potential further acquisitions that expand our market data business,” O’Donnell says, though he declines to specify any companies or business areas that the vendor is considering.

However, Nayar confirms that “we’re keeping a keen eye on other acquisitions, so I don’t imagine I’ll be done with integration anytime soon.”

Other wins envisaged for the near future include combining Exegy’s field-programmable gate array (FPGA)-based Xero Volatility Trading Engine with Vela’s Metro automated options trading platform to create an integrated derivatives trading platform that—as a result of using Exegy’s low-latency hardware—will offer tick-to-trade latency of 120 nanoseconds. O’Donnell says this integration will be completed before the end of next month, and the vendor will later expand the platform to other asset classes.

Vela’s automated execution capabilities will also complement Exegy’s Signum trading signals.

“The direction we’re going is deriving more information from the data going through our boxes. Our signals may have useful timeframes of less than a second, but there’s a lot of information in that data. We’re keen to derive more from it, and to find ways for clients to use it—and Metro and Vela’s execution business will prove valuable to that,” O’Donnell says. “Exegy made a substantial investment in Signum, and Vela gives us distribution for those products.”

Dan Connell, managing director at research firm Greenwich Associates, says the combination makes a lot of sense. “The hardware orientation of Exegy and their efforts to expand from data normalization and distribution to data analytics (trading signal identification, etc.) combined with the Vela investments in broader market coverage and trade execution helps both companies,” Connell says. 

Iati says the deal is a sign of more potential acquisitions in the future—not only for Exegy itself, but for the industry as a whole. “We will undoubtedly see more M&A activity in the market data business, both with consolidation of established providers and with entry of new providers. Data is clearly an attractive business as our institutions crave more ammunition for all aspects of the business,” he says. “We also know that mergers fuel more mergers as the bar is raised for competitors.”