The London Stock Exchange seems to be getting a bargain with its purchase of my former employer, Millennium IT. The price of seems justified by the savings from replacing the current (expensive to run) platform, and, in addition it is a better platform and Millennium IT itself is a potentially significantly profitable business.
One thing that does concern me is that the purchase has been made in pursuit of speed, to cater to high frequency traders. This is not necessarily good for other investors.
I am sure many people are wondering what sort of company Millennium IT is. It was certainly a great place to work. It has spectacularly beautiful offices (set in acres of landscaped gardens, complete with an unused open air theatre). It attracts talented people ( the beautiful offices help), but staff turnover is high, largely due to long working hours — that said, the company has retained most of its key senior staff for many years.
Millennium is very much the creation of its CEO Tony Weerasinghe. Tony is the lucky possessor of a reality distortion field — as has been demonstrated by his ability to convince clients all over the world that exchanges can be trusted to systems developed in the third world! I do wonder what Tony will do next. It his hard to imagine that someone of his ambition and charisma is going to quietly pocket his millions (he had a large stake in Millennium) and settle down to running a obscure subsidiary of the LSE. I expect to see him either rise rapidly within the LSE or leave to start another venture.
The LSE is paying $30m in cash and shares. In addition Millennium IT is still probably carrying a significant amount of debt (rumoured to have largely been run up building their very nice offices, which I think I mentioned). This is more than justified by the £10m in annual savings. In addition it gets the strategic advantages of a faster and more flexible platform, as well as a potentially significantly profitable business.
Millennium's core product is very good. I am convinced of its versatility, and it is a comparatively easy system to manage (the key to lowering operating costs). I am less keen on its client systems (trading terminals etc.), but those are less important. As for speed, I do not have access to numbers, but the key technology decision makers at Millennium are speed freaks and have focused on performance for a long time.
A number of the risks of a takeover, especially of a third world company, are also likely to come off for the LSE. The management are honest. The company has a good reputation within Sri Lanka, and its acquisition by the LSE can only help attract staff. The corporate culture is healthy, although somewhat high pressure.
It also appears likely that Millennium lost a key client as a result of a takeover earlier this year (unless the acquirer has chosen to move to Millennium's platform, which is unlikely), which probably made shareholders receptive to the offer — which would explain why the LSE has got a fairly good price.
One other thing to note is that this means that the London Stock Exchange will move its trading platform from Windows to Unix or Linux. It is unusual for such a large system to run on Windows, and it is likely that this has contributed to its high running costs — not that the LSE, Accenture (who designed the current system) or Microsoft will admit that or reveal enough about the system for us to be sure! Millennium IT designed all its capital markets software to run on Solaris, with the CDS based on an Oracle database. It has long developed software to run on any Unix variant, and, in recent years, has been using Linux to allow its clients to use cheaper hardware.
An OpenVMS based solution would have been a more sensible choice for cost containment and long term reliability