In a sign that the maturing of the Chinese financial markets is creating new opportunities for Western technology suppliers, SunGard Data Systems of Wayne, Pa. has acquired Shanghai-based Fudan Kingstar Computer Co. SunGard, which did not disclose the purchase price, said Kingstar’s management team would remain in place.
The financial technology giant described Kingstar as “a leading provider of software and processing solutions for China’s financial services, higher education and public sector.”
Its products include KSBroker, a brokerage management system; KFutures for futures trading; KInvestor, a portfolio management and order management system; and KExchange, a derivatives trading system.
“We chose to acquire Kingstar because the reforms in Chinese marketplaces, as well as the progress under the World Trade Organization, make this an optimal time to expand SunGard’s presence in the country,” John Warren, SunGard’s managing director for the greater China region, told Securities Industry News.
SunGard opened a representative office in Beijing in 2001 to serve a major customer, China International Trust & Investment Corp., but has added no Chinese customers since. Acquisitions have been an integral part of 24-year-old SunGard’s growth strategy; it has made approximately 150, but Kingstar is its first in China. SunGard, which has $4 billion in annual revenues, was bought in 2005 for $11.4 billion by a private equity consortium led by Silver Lake Partners.
he purchase of Kingstar, which closed in December, comes at a time when Chinese markets are in flux and technology suppliers are scrambling to meet demands for sophisticated trading platforms. Neil Katkov, group manager of Asia research in Tokyo for Boston-based research firm Celent, said: “There are many small IT companies in different provinces, and they usually have tight connections with the local financial industry. It is difficult for a foreign company to break the connections.”
Another barrier for foreigners trying to break in is cultural, said Yang Qingfeng, director of research at Beijing-based China ComputerWorld Research.
“It’s not easy to persuade Chinese customers to accept services and products from a foreign company,” he said. SunGard’s direct ownership of a domestic supplier gets around that problem. Founded in 1995, the company, renamed SunGard Kingstar, has over 500 employees, and its more than 400 clients include the Shanghai Stock Exchange, Shenzhen Stock Exchange and Industrial & Commercial Bank of China. “We will be actively marketing selected SunGard products through Kingstar,” Warren said.
“We would expect many of the current clients of Kingstar to make a move outside of China when regulations allow, which will provide further opportunities for SunGard.” For Kingstar, the acquisition brings technology expertise that is often difficult to find domestically.
“China is undergoing financial reform, and the IT infrastructure level lags far behind demand,” Kingstar president Zhou Hua told the state-owned Shanghai Securities News. “Sometimes our clients don’t even have the professional staff needed to communicate with us, and it makes [research and development] very difficult. We hope SunGard will bring us experience and the latest technology.”
“The limitations in Kingstar’s research and development are holding it back from providing such customer services,” Qingfeng noted. “This is a common problem for most Chinese IT companies.” Warren said that Kingstar’s R&D will benefit by being part of SunGard’s service-oriented architecture, the Common Services Architecture. A collaborative approach to development allows SunGard research and development teams to leverage one another’s work.
For further growth in China, Celent’s Katkov said, “SunGard can either acquire other regional companies like Kingstar, or build Kingstar into a company with national reach. The latter could be the more sensible [and less costly] choice.” He expects China’s technology market to consolidate over the next few years, resulting in fewer suppliers serving more customers.
Wang Fangqing contributed to this report.
Article originally appeared in Securities Industry News, which has since closed down.