Fears of monopoly sink a marriage made in heaven.

By Andrew Webb

SunGard’s recent acquisitions of Renaissance Software and Infinity Financial Technology have earned it a reputation as a well-oiled marketing and acquisition machine. So when the company announced its intention to buy rival Rolfe & Nolan, everybody assumed it would soon be a done deal.

A few weeks later, however, SunGard announced it was letting its offer for Rolfe & Nolan lapse. What went wrong?

SunGard wanted to buy Rolfe & Nolan because it is a leading vendor of back-office clearing systems for exchange-traded products. Last year, SunGard bought GMI, another vendor of back-office clearing systems. Soon after the acquisition, some GMI clients claim they were socked by price increases of up to 300 percent.

“We’ve come out of the situation extremely well, because the negative impact on SunGard Futures & Options’ client base has given a big boost to interest in our product range.” Peter Day chief executive officer, Rolfe & Nolan

By combining GMI and Rolfe & Nolan, SunGard would have had approximately 90 percent of the market. When Rolfe & Nolan’s futures and options clearing clients learned of the SunGard takeover, they smelled monopoly—and took to the phones, complaining to both the U.K. Office of Fair Trading and the U.S. Department of Justice. The U.S. regulators made the biggest fuss, serving subpoenas to both vendors as well as interviewing a number of senior broker-dealers on Wall Street.

The client response certainly took SunGard by surprise. “We both [SunGard and Rolfe & Nolan] thought it was a great deal,” says Cristobal Conde, chairman and chief executive of SunGard Trading Systems. “A group of institutions clearly disagreed very vocally. As a result, because we have relationships with many of those firms that goes way beyond merely futures, we didn’t wish to damage that and so we backed away. The level of opposition was way beyond what we expected.”

At the beginning, anyway, Rolfe & Nolan was hardly a willing bride. After the first overtures from SunGard, Rolfe & Nolan reportedly approached rival Misys, which found the offer completely resistible. But according to one source, the asking price moved up after SunGard’s due diligence team went out for drinks with some of the staff at Rolfe & Nolan. After a glass or two someone from the SunGard team mentioned that GMI had failed to realize how valuable it was to SunGard, and said it could have secured a lot more money had it been sharper. Soon afterward, Rolfe & Nolan decided that the current offer was inadequate and forced SunGard to up the ante.

The deal also seems to have helped Rolfe & Nolan boost its P&L. When news of the SunGard deal broke, a number of Rolfe & Nolan clients rushed to renew and extend their contracts in order to protect themselves from SunGard price increases.

“The irony is that without this merger, the probability of price hikes at Rolfe & Nolan is that much higher.” Cristobal Conde chairman and chief executive, SunGard Trading Systems

Peter Day, chief executive officer of Rolfe & Nolan, is defiantly upbeat about the fallout. “We’ve come out of the situation extremely well, because the negative impact on SunGard Futures & Options’ client base has given a big boost to interest in our product range,” he says. “SunGard wanted us because its Futures & Options side needed Rolfe & Nolan in order to maintain its growth plans. The loyalty of our staff throughout the whole process has ensured that we are now stronger and even more competitive going forward than before.”

Conde, for his part, seems regretful, if phlegmatic. “We’ll survive, and the deal would not have made a huge difference—but it was nevertheless an opportunity. We’ll just continue competing with Rolfe & Nolan as before, but I don’t think it makes any difference to our long-term strategy. I have a lot of respect for Rolfe & Nolan—you can tell that because I wanted to spend more than $100 million on it.”

He adamantly insists, however, that the Rolfe & Nolan acquisition would have been quite a different proposition from GMI and that the potential synergies in the failed deal would have meant that prices would not have been raised immediately. Says Conde: “The irony is that without this merger, the probability of price hikes at Rolfe & Nolan is that much higher.”

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