STT State Street Corporation

Broadridge Financial Solutions Inc. (BR) has agreed to acquire investment management solutions provider Paladyne Systems for a sum of $76.5 million, subject to various adjustments. The acquisition will help Broadridge to expand its presence in the buy-side market.

Founded in 2005 and headquartered in New York, Paladyne Systems' platform provides asset managers, fund administrators and prime brokers with customized applications to streamline and manage their businesses effectively.

Paladyne Systems will operate within Broadridge’s Securities Processing Solutions division. Broadridge will use Paladyne’s capabilities to provide services to hedge funds, brokerages and asset managers among others.

Buy-side is a term used in investment banking to refer to buying securities (private equity funds, hedge funds, unit trusts and pension funds). On the other hand, a group of financial participants that are generating commissions (by providing tips to investors regarding buying or selling of stocks) as a source of income denotes the sell-side of capital markets.

Till now, Broadridge has focused mainly on the sell side, but over the past few months it has made investments in the mutual fund space for processing and data warehouse servicing. Hence, we see the deal as a milestone, allowing Broadridge to evolve as a key buy-side player.

Broadridge's proven sell-side solutions and client-focused services in combination with Paladyne's innovative buy-side technology will create the most comprehensive technology plus service offerings within the financial services industry.

In November 2010, the outsourcing service provider acquired Matrix Financial Solutions Inc. for a total cash consideration of roughly $201.0 million and strengthened its Securities Processing Solutions division. Moreover, in August 2010, the company acquired NewRiver Inc. and fortified the Investor Communication Solutions segment.

Broadridge Financial posted a decent fourth quarter and surpassed the Zacks Consensus Estimates on both top and bottom lines. We believe that the sale of the Clearing business will enable Broadridge to focus solely on revenue opportunities associated with securities processing and outsourcing services. We also remain optimistic on Broadridge’s strategic acquisitions and potential product launches.

However, we believe that sustained weakness in market activity in the post-recession period continues to impact the company’s performance as can be inferred from the dull fiscal 2012 guidance. Management expects a weaker trend in event-driven mutual fund proxy revenue.

Additionally, Broadridge faces significant competition from companies such as HD Supply, DST Systems Inc. (DST) and State Street Corp. (STT), which have increased pricing pressure for the company.

Currently, Broadridge has a Zacks #3 Rank, implying a short-term Hold recommendation.

 
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