The number of suppliers of technology solutions to the UK market has grown steadily over recent years. We have new and relatively new start-ups such as 2020 Adviser and True Potential, we have overseas companies entering such as Profida and Broker CRM. Alongside these, the established players such as 1st – The Exchange, Focus and IntelliFlo have been extending their reach, while systems like SSP, JCS and Plum have also been revamping their solutions. It could be argued that the market has become overcrowded and we have been predicting consolidation amongst the existing players for some time, (AT8 has just produced a report analysing the various vendor’s solutions).

The process of consolidation began last year with the merger of two of the biggest players in the Mortgage market – Trigold and Crystal and this week accelerated with the acquisition of N4 Solutions (N4) by 1st – The Exchange.

There have been a number of weaknesses in the offerings from 1st – The Exchange including:

• Lack of an online solution for the adviser market
• A weaker point of sale offering for Corporate clients (Adviser Evolution failed to gain traction in this space)
• Lack of experience in delivering to large Corporate/Enterprise clients.
• The lack of a clear joined-up sales message across the various disparate product offerings – which often overlapped/competed with each other

The acquisition of N4 Solutions should help to address the top three issues but depending on how well it integrates N4, the fourth issue may be either resolved or exacerbated. There is a major rebrand that has been in the pipeline for the last few months to bring these brands together and it is our understanding that this has been delayed to ensure the N4 products are included. This may help resolve the issue four. N4 was founded in 1999 by a management group with a successful track record and knowledge of the financial services industry. Rapid initial growth led to the company having 100 staff based in their ‘rural’ offices near Cirencester. The vast majority of staff has expertise in mortgages and financial services, as well as business consultancy and technology. The company considers itself to be stable, secure and successful. Based on the financial performance of the company, this view does not seem unreasonable. In July 2007 N4 was acquired by Experian for ‘an undisclosed sum’ (believed to be between £20 and £30 m)! There does not appear to be any specific figure available and even the Experian accounts that refer to acquisition expenditure of $1.7bn only highlights two specific figures and groups N4 under ‘other’. N4 produces and submits full audited accounts to Companies House (auditors are Baker Tilly). The company’s financial results for the year to March 2009 are a turnover of £13.8m up from £9.5m (a 45% increase) and a profit after tax of £3.5m from £1.2m (a rise of 178%). Its Net Assets were £10m and employee numbers were up from 66 to the 84 referred to above.

The justification for the acquisition appeared to be the bringing together of N4’s vertical market expertise with Experian’s market-leading ability in application processing and decision analytics, along with lead generation and property valuation models. N4 had a number of successes under the Experian umbrella including projects at Nationwide and Aviva but didn’t achieve (and arguably didn’t strive for) wider market positioning. N4 continued with an entrepreneurial drive which was beginning to look uncomfortable in the very corporate Experian family and a Management buyout of N4 was done in April 2010. Less than two months later, the management team sold the company to 1st – The Exchange.

When LDC took over 1st – The Exchange it was clear that they were positioning themselves to invest further in creating a substantial technology player in the financial services market. The N4 acquisition is the first step of what may or may not be others in order for them to achieve their vision. N4 brings with it substantial Enterprise experience of success which 1st – The Exchange has lacked. N4 has delivered some large projects including a substantial project at Nationwide. However, they – like others – have had difficulties and ‘expectation gaps’ to manage with big implementations.
N4 and 1st – The Exchange have worked together on several large projects in the past including Intrinsic and Norwich and Peterborough where N4’s POS system was integrated to Officeweb. These projects appear to have gone well and should bode well for the integration.

At Nationwide N4 delivered a mortgage origination system and this mortgage capability will have been of real interest to the 1st – The Exchange management. 1st – The Exchange has been promoting consumer facing solutions to the lenders and the ability to include the origination piece will greatly enhance their offering in this space. Adviser Evolution – the POS system – from 1st – The Exchange has struggled to gain traction in the market and N4 has a strong POS offering, supporting mortgages as well as life products, (although it appears less productised than most). The N4 solution gives an online alternative to Evolution that is badly needed although 1st – The Exchange a keen to point out that they remain committed to Adviser Evolution despite the acquisition.

For several years 1st – The Exchange has had too many products, gained through acquisition that have not been rationalised into a single branded, joined up solution. It should be possible to merge the solutions into a single family as the solutions already link up at client sites and largely complement rather than overlap. However, given the track record of addressing this issue it remains a concern that this will not be done in a timely manner. If properly adopted, the N4 acquisition has the potential to be the strategic solution and justification to ‘retire’ the other product entities gracefully, but it could also further exasperate the confusion of product strategy and choice – time will tell.

Taken as a whole the acquisition makes a lot of sense. It gives 1st – The Exchange parts of the application stack of a distributor that it didn’t address well. If the right focus is given to making the integration work it should enhance both parties position in the market. We await further signs of progress with great interest.

Last week, I gave a presentation to the sales and support managers of CFS. The division has been managed by Dennis Ryan (ex Barclays) for the last few years and Dennis has taken the distribution channel through some major changes as it organises and equips itself to compete in the challenging times ahead. Dennis is a charismatic leader with a disarming nature that is unusual in someone of his position. Originally from the North East, he is so ‘down to earth’ that his management team and colleagues ‘look up to him’! He has an open and honest approach that helps him to deliver and get support for changes that he has introduced – including a reduction in the adviser numbers from over 1,000 to 600 (with increased growth and profitability).

On one slide (of too many) that was part of the presentation about the market challenges – including the global and local economy and regulation (RDR etc) – I listed a number of bullet points to illustrate the economic environment:

My point was that it is too often too easy to focus on the negatives and see the ‘glass as half-empty’ (some see it as completely empty!). I gave a personal example of how we need to put problems and challenges in context – without ignoring them for what they are. I was relating a story about the challenges of having a daughter about to do ‘A’ levels and the pressure that I was placing on her to study in order to get the grades required by her University offer (I am apparently more of a ‘stress transferor’ than a stress owner). All of this paled into insignificance (well not quite…), when, after a week of racing heart rate (tachycardic) and two occasions when she collapsed, she was eventually rushed into hospital with what turned out to be ‘massive bilateral pulmonary emboli’ (two big blood clots on both lungs) that were causing significant strain on the heart and required urgent thrombolysis. My daughter has become a bit of a phenomenon due to the rarity of the problem in someone so young without obvious linking causes, but I am sure she would prefer not to have this notoriety.

The good news is that the advice and treatment by the experts seems to have worked and although still recovering with ongoing medication, the current status is less critical and worrying than three weeks ago. The point is that however difficult the situation, there is usually a way of dealing with it and in the context of other situations it may not be as bad as we first feel.

Going back to the presentation and the bullets on the various slides, we should remember that our industry often has the knowledge, skill and experience (and products) that can help consumers to manage or mitigate some of the consequences of the problems that the economy presents. We should be proud of what we do and positive about the value we create. As I said (not original) last week, ‘the only constant is change’! Our industry needs not only to cope with change, it needs to be resourceful and adaptable in order to ‘create positive change’.

We’re currently in the process of putting together a new report looking at all the solutions’ vendors and one of the interesting by-products of the research is the number of suppliers who are adding smartphone apps to their product portfolios. Companies like Distribution Technology, True Potential and others are really pushing hard the sort of services that are more accessible whilst ‘out and about’ with clients or prior to a face-to-face meeting.

There’s been a lot of noise this week around the manufacturers, with HTC’s new baby, the EVO 4G, selling out in the US and, of course, the Apple iPhone 4 being announced at Apple’s WWDC conference in San Francisco last Monday.

The AT8 crew are all iPhone 3G (or GS) users, and so I followed the conference live from the blogs and would describe the announcement as evolutionary not revolutionary, despite Steve Jobs’s spin. There are some real benefits to the new device:

• Bigger battery = longer standby/talktime – from a personal perspective, I really need this
• Smaller form factor – should fit in my shirt pocket even easier now
• Higher resolution screen – I’m looking forward to seeing this ‘in the flesh’
• Video Conferencing – using a new open standard called FaceTime and utilising a new front facing camera, but only using Wi-Fi at the moment
• Higher resolution camera – up to 5M pixels, with LED flash

I must say, it looks good, too – I like the metal finish and also the glass front and back, which should add to its durability.

The big question is, though, can it shake off the competition of an ever-growing adoption of Google’s mobile operating system Android, with it’s latest incarnation, codenamed FroYo, hitting the newer devices now – I’m not sure and Steve Jobs in his recent interview at the D8 conference, appears to shrug off the competition – certainly, Apple are manoeuvring away from Google, with the inclusion of Microsoft’s Bing and Yahoo search in the new iPhone operating system renamed iOS 4 – incidentally, iOS 4 can also be loaded onto some more modern iPhones and iPods, with it being available for iPad’s later in the year.

Anyhow, I’ve already approached my service provider, who gleefully tells me that I’m going to have to wait a few more days to get an idea of the UK pricing – once I have one, I’ll let you know my first impressions.