Integrated Decision Systems, the portfolio management software company that lost its venture-capital funding after it was selected as the centerpiece for Fidelity’s new integrated technology platform for RIAs, has been purchased by CheckFree Corp.
The $18 million cash purchase price reflected the value placed by CheckFree on IDS’s technology for large institutions, but it did little to clarify whether IDS’s portfoilio reporting system would continue to play a central role in Fidelity’s RIA platform, or play any role as a portfolio management software vendor in the independent advisor market. The sale was announced on September 2 and closed a week later.
According to a source familiar with the bidding, the investment banking firm hired by IDS, USBX in Los Angeles, solicited about 25 industry participants to generate interest in bidding. USBX posted on the Web in secure folders about 400 documents with financial, marketing, and other information about IDS’s business that were accessed by bidders.
IDS, a 24-year old company with $4 trillion of assets on its portfolio accounting systems, nearly collapsed in mid-June after differences over the future direction of the company had caused its two venture capital backers to refuse to provide IDS with additional funding. The company initially fired all 80 of its employees on June 20 and management was considering bankruptcy, according to former employees. Only after the VCs agreed to fund the company with enough cash to last for a couple of months was the company able to bring back 20 to 25 employees to keep the business running while an auction of the company went ahead.
Fetching $18 million for the company, which was rapidly unraveling and had lost or dismissed 50 of its 80 employees, was considered a victory for investment banker Jay Beaghan, who heads up technology banking at USBX. “To the extent that the various constituents could not get on the same page before we got involved, after our involvement its seemed like everyone was going in the same direction,” said Beaghan.
Alex Marasco, an executive VP and general manager of CheckFree Investment Services, a unit of the publicly held company, said he was planning to meet with Fidelity executives to discuss whether IDS’s platform for RIAs would continue to be used or replaced.
“We don’t have much to say at this point,” says Fidelity spokesman Steve Austin. “We’ve been in consultation with CheckFree senior management to discuss our relationship and how the acquisition could potentially affect our clients,” says Austin. “We’ll be providing information to our clients first.”
IDS’s core business came from two institutional products, Caliper and Global Investment Management (GIM). Caliper provides performance reports to institutions with large numbers of retail clients. In addition to being the performance reporting system behind Fidelity’s retail Portfolio Advisory Services mutual fund wrap account, Caliper is used for reporting at AG Edwards, UBS Financial Services, and Wachovia. GIM provides large institutions with a portfolio accounting system as well as performance reporting.
Sources familiar with the institutional portfolio accounting business say CheckFree, which is the dominant portfolio accounting software company in the wrap account business, was mainly interested in acquiring IDS because of its two institutional products. Calipers brings CheckFree new business with large sponsors of wrap accounts. Since CheckFree has dominance among wrap account managers, adding to its strength on the other side of the wrap account business–among sponsors–is beneficial. GIM will bolster CheckFree’s non-U.S. reporting capabilities, an area where GIM is strong because it is a multi-currency system.
Whither IDS’s RIA Business?