SimCorp looks a good fit for Deutsche Börse
Big acquisitions often fail to turn out well in hindsight. Growth and synergy fantasies sketched out on paper always sound promising, but run up against reality. And that reality is called integration. With SimCorp, Deutsche Börse is currently digesting such a major acquisition. Management is optimistic that the integration will succeed, and likes to emphasise the cultural fit between the two companies.
Q1 was the second quarter since the consolidation of SimCorp. However, the mere fact that a company is consolidated on the balance sheet does not imply full integration. In the first three months, Deutsche Börse's operating costs increased by a quarter to 564.5 million euros compared to the same period last year, primarily due to costs related to the SimCorp acquisition. From an organic perpective, the increase was only 4%, which is within expectations given high inflation.
Cost control
Analysts had anticipated higher costs. Thus, it is all the more surprising that the share price fell by around 3.5% during the day the figures were announced. Shareholders seem somewhat hesitant. The question now is whether Deutsche Börse really has integration costs under better control than the market believes – or whether an unpleasant surprise might still be looming later in the year.
Keeping costs under control will be crucial to unlocking the full strategic potential of SimCorp. In the first quarter, Deutsche Börse recorded 11 million euros in expenses related to SimCorp. The cost forecast for the full year is 50 million euros, with an additional one-time expense of 92 million euros, mostly related to the M&A process. In terms of net revenue, the SimCorp business segment (Investment Management Solutions, IMS) was the least profitable in the first quarter. The Ebitda margin was only 35%, significantly lower than the Trading & Clearing segment's 64.6%.
Nonetheless, the first quarter also demonstrates that the strategic considerations concerning SimCorp are paying off on the revenue side. While volatile trading activities stagnated or even declined slightly, Investment Management Solutions saw growth. Assuming no unexpected cost surprises, the margin issue should soon be resolved – and shareholders will be convinced.
