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Electronics

NEC buys Swiss firm Avaloq for $2.2bn in global fintech push

Japanese electronics company makes biggest acquisition to date

NEC plans to plug the Swiss fintech company into its own sales channels to continue expansion in the growing sector.   © Reuters

TOKYO -- Japanese electronics giant NEC will purchase Swiss banking software developer Avaloq Group for 2.05 billion Swiss francs ($2.2 billion), the company said on Monday.

NEC plans to acquire all 52,488 shares by April 2021, as it looks to leverage the Swiss company's knowledge and digital finance software technology for growth.

It paves a new path for an NEC that had long been on the defensive, selling off business units and reducing staff to strengthen its footing. The Avaloq deal marks the third purchase of a European company by NEC in the past three years, following British software and services provider Northgate Public Services, which it bought for 475 million pounds ($620 million at current rates) in 2018, and Danish information technology group KMD, purchased for 8 billion kroner ($1.3 billion) in 2019.

Avaloq, NEC's biggest acquisition to date, provides banking software mainly to private financial institutions and has more than 150 clients in 30 countries. 

It has one of the biggest market shares in wealth management software within Europe and the Asia-Pacific region. More recently, Avaloq has been accelerating its fintech business by forming partnerships with startups.

"Digitization will accelerate in the fields of government and finance," NEC President and CEO Takashi Niino told an online news conference Monday. "We want to read the trends and go global."

Europe is especially advanced in e-government. Procedures for tax filings and government payouts can be handled online, as personal identification numbers and bank accounts are interconnected. NEC believes that such infrastructure offers great potential for big-data analysis.

The purchase price is equivalent to roughly 30 times the latest three-year average earnings before interest, taxes, depreciation and amortization. NEC Chief Financial Officer Takayuki Morita acknowledged that the cost was high compared with past deals but called it "reasonable" in light of the growth potential and expected profitability.

In a news release, CEO Niino said: "NEC will be placing great importance on building long-term relationships with Avaloq and its customers, and aims to create new solutions that combine Avaloq's software with NEC's cutting-edge technologies, such as its brand of biometric authentication solutions, 'Bio-Idiom,' the company's AI technology brand, 'NEC the WISE,' and its innovative blockchain technologies."

The statement also indicated that NEC wants to expand Avaloq's software sales through the Japanese company's own channels, including KMD's.

NEC said the impact of the takeover on earnings for the current fiscal year ending March 2021 is still under study.

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