AccessMyLibrary provides FREE access to over 30 million articles from top publications available through your library.
Create a link to this page
Copy and paste this link tag into your Web page or blog:
Less than two years ago, Automatic Data Processing (ADP) launched a bold effort to remake its brokerage services, acquiring two bank-owned clearing firms and devising an entirely new approach to outsourcing in that business. Now the group is planning to separate from its Roseland, N.J.-based parent and attack the intricate, often volatile and high-stakes brokerage processing market on its own.
ADP said last week that it will spin the brokerage processing business off in an initial public offering to be valued at an estimated $3 billion. The transaction is expected to be completed by the end of 2007, yielding $500 million to $700 million to ADP in the form of a tax-free dividend. The spin-off will have nearly $2 billion in revenue and 4,000 employees and will consist of ADPOs long-standing Brokerage Processing Services and Securities Industry Software units as well as the newer Clearing & Outsourcing Services business. Craig Peckham, an analyst at Jefferies & Co., noted that the largest piece of the new company will be Investor Communication Services, which specializes in delivering banksO and brokeragesO client information and generated $1.38 billion in revenue in ADPOs 2006 fiscal year, which ended June 30. That compares to $550 million in trade processing and clearing revenue. But Othe back-office and clearing area is where more of the growth should come from,O said Peckham. OThere are some secular challenges in the investor communications business, one of which is the increased usage of digital technology to deliver mailings.O
OThe brokerage industry has changed in recent years,O Gary Butler, ADPOs president, COO and CEO-elect, said in explaining the companyOs rationale. He said that brokerage processing is Ostill attractive in terms of long-term growth opportunitiesO but does not measure up in growth profile and potential to the companyOs employer services and dealer services businesses, where it will now concentrate.
Arthur Weinbach, ADPOs retiring CEO, will be chairman of the reconstituted Brokerage Services Group, with current co-presidents Richard Daly and John Hogan becoming CEO and COO, respectively.
Controlling Strategy
Adam Honor, an analyst at Boston-based Aite Group, said the recent surge in securities industry regulations and tighter margins in the highly automated trading business may have dampened growth expectations. ADP, in effect, is simplifying its corporate structure and mission, and executives in the brokerage services area will be in control of their capital expenditures and not have to sell strategic acquisitions and other initiatives Oto a management that doesnOt understand the brokerage business,O he said.
OThey have the opportunity to really create a new company, untethered from ADP,O Honor said, adding that another factor in the split is the brokerage industryOs volatility, in contrast to the other, steadier-growth ADP business lines. He sees parallels between the ADP brokerage operation and financial technology colossus SunGard Data Systems, which Owill buy anybody that they feel will enhance their product line. I think ADPOs spin-off wants the same thing.O