Trayport After the GFI Acquisition - By Gary M. Vasey, Ph.D.

GFI Group Inc., the inter-dealer broker specialising in over-the-counter derivatives products and related securities, purchased Trayport for £75 million in February. Trayport provides real-time electronic trading software for brokers, exchanges and traders and the acquisition represents a five time multiple of Trayport's £14 million revenue per annum. The deal was anticipated to raise a few eyebrows across the European energy trading space as Trayport is a significant trading platform for European energy, while GFI is one of the main inter-dealer brokers. However, both companies have worked hard to allay any concerns.

What drove this acquisition, how does it impact current and Trayport users and what is the future for Trayport? I recently spoke with Alan Bright, PR Manager for GFI Group and Elliot Piggott, Deputy Managing Director for Trayport to get these questions answered.

The GFI View

According to Alan Bright, the Trayport acquisition provides GFI with an ability to enhance its electronic trading capabilities. GFI believes that the supply of electronic trading platforms is critical to its continued growth. In European energy trading, Trayport is a leading player and all major broker/dealers use it. So while GFI's strategy is to own the technology delivery platform, it is important to continue to do so in an open fashion. The Trayport platform has little value unless it is utilised by existing and future clients. Indeed, GFI see the platform expanding into many other areas and recent announcements regarding the Trayport distribution of NYMEX products and its relationship with Tradition, a large interdealer broker, certainly reinforce this strategy.

“Trayport is run at 'arm's length' by GFI Group and interactions are only at the Board of Directors' level,” Mr. Bright explained. “GFI Group remains a key client of Trayport as well as its owner.”

The Trayport View

From Trayport's perspective the motivations behind the deal seem to be slightly different. It sees the acquisition as affording it the opportunity to grow beyond the traditional European energy markets into North America and Asia-Pacific while offering the electronic trading of other asset classes via closer cooperation with GFI Group. It believes that the acquisition cost paid by GFI reflects Trayport's growth potential, and argue in response to worries over the acquisition that any change to their current growth model (being an open platform with respect to other broker/dealers) would certainly change Trayport's growth profile.

Trayport argues that the acquisition has not impacted its ability to write and support quality software and that, in fact, they have already expanded the market access side of the product since the acquisition through the addition of access to NYMEX, NordPool, DEX and ICE products. The announcement around Tradition also appears to suggest that their continued independence as a self-managed entity with the same business focus and management team has helped continue to establish the platform's value to other broker/dealers even post the GFI acquisition.

Mr. Piggott said, “GFI Group simply desired to grow their investment in technology and electronic trading. Meanwhile, Trayport continues to aggressively sell to GFI Group around the world as a strategic client."

UtiliPoint's Assessment

UtiliPoint believes that the acquisition of Trayport by GFI Group, while perhaps threatening to initially raise some quite genuine concerns regarding future platform openness, provides no real fear to Trayport's current clients. Our assessment is based on the idea that any change in Trayport's ability to be "open" with respect to other broker/dealers, would significantly erode its ability to deliver and impact its market share. At a valuation with a multiple in excess of five, this makes little or no sense for either party—it is a significant investment on the part of GFI. This view seems reinforced by the rapid progress that Trayport have made in providing new markets and products for their users via the platform and by the recent announcement of a five-year partnership with Tradition—another broker/dealer.

Present and Future

Trayport has a dominant position as an electronic trading and deal discovery platform in European energy trading where 100 of its 115 or so employees are based. Mr. Piggott points to the high predominance of OTC trading in Europe versus other regions like the United States, where OTC trading is generally not electronic and trading is more exchange-based. Trayport hope that the GFI acquisition will help them expand in other geographies including North America however.

Piggott also is a little surprised by the slow evolution of markets pointing to cross asset trading as an example and in the slowness of the traditional markets to get into commodities. He also points to freight rate trading as an area of growth where “three to four years ago, freight was considered too complex to trade electronically,” but is now a growth market. One thing is for sure, since the GFI acquisition Trayport has continued to add connections to its platform and exchanges such as SIBEX and ECOMEX have moved or are moving to its platform.