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Market study on the asset finance software market

January 2017

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PwC

There is a large and growing market for the provision of specialist software and related services to banks, captives and independents offering asset finance

Specialist software solutions are critical enablers of the provision of asset finance, supporting the critical operational workflows of banks, captives and independent providers


2January 2017

The outlook for both US and European asset finance markets appears positive, albeit slowing

This is driven by increasing penetration of asset finance and a broadly supportive economic environment

Providers of asset finance are fragmenting over time, due to innovative new entrants

The addressable specialist asset finance software market was worth c.$3bn in 2015, of which c.$1bn was penetrated

A further c.$2bn of market headroom exists for specialist solutions to replace in-house and tailored ERP solutions

We expect spending growth of c.7% p.a. to reach c. $1.5bn by 2020, driven by increasing penetration, spend and the asset finance market

Leading specialist software suppliers are those serving the largest banks, captives and independents

These suppliers perform well versus customers’ key purchasing criteria: product interoperability and supplier track record

There is a trend of independent suppliers being purchased by broader software houses – a threat and opportunity to specialist suppliers

1 2 3

4 5 6

7 8 9

PwC

PwC

Source: Market data, PwC analysis

The global asset finance market was worth >$5 trn in 2015, with just under half of this value driven by new business volume in year


3January 2017

US, 2.4

Europe, 1.4

RoW, 1.6

-

1

2

3

4

5

6

5.4

US, 1.1

Europe, 0.7

RoW, 0.8

-

1

2

3

4

5

6

2.6

Global New Business Volume (NBV) for asset finance, 2015, $ trnGlobal outstanding asset finance, 2015, $trn

1

PwC

-

20

40

60

80

100

120

140

160

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Forecast

Market growth in NBV for US, Index 2015=100

The outlook for the US and European asset finance markets appears to be broadly positive


4January 2017

1

Source: PwC analysis, Market data

*Europe figures exclude loans

Central case for forecast market

growth: CAGR

2011–

2015

Forecast

CAGR

2016–

2020

2011–

2012

2012–

2013

2013–

2014

2014–

2015

US:

Asset Finance11.5% 11.2% 9.2% 7.4% 9.8% c.5%

Equipment 15.3% 9.4% 10.8% 10.4% 11.5% c.10%

Auto 9.8% 12.1% 8.4% 5.9% 9.0% c.2%

Europe*:

Leasing &

Hire Purchase

1.2% 2.3% 9.6% 10.4% 5.8% c.5%

Equipment (2.4%) (0.1%) 5.0% 6.6% 2.2% c.6%

Auto 5.8% 5.2% 14.7% 14.2% 9.9% c.4%

Market growth in NBV for Europe, Index 2015=100

-

20

40

60

80

100

120

140

160

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Forecast

We have illustrated growth in

the forecast period for the

central case as well as for a

high and low case scenario

PwC

US asset finance growth is driven mainly by increasing penetration, along with a supportive economic environment, partially offset by expected tapering in equipment & auto sales growth and pending regulatory changes


5January 2017

2

• The US economy is forecast to continue to experience steady GDP growth (1.8% in real terms through 2020), along with continued low unemployment (4.9% in 2016) and sustained wage growth (5.3% through 2020)

• Business confidence has been boosted by the conclusion of the US election, with the new administration’s commitment to cut the rate of corporate tax to 15% forecast to result in a windfall of c.$2.6trn for the private sector in the first decade; the threat of continued dollar strengthening remains a possible challenge

• Some short term political uncertainty remains while a new administration is formed and policies elaborated

Economic environment

• Growth in equipment investment has slowed recently (4% in 2015, vs. 7%p.a. 2010-15), but decline in growth is expected to stabilise as the drag from the stronger dollar and low energy prices dissipate and companies invest at rates consistent with an economy growing at c.2% rate

• US auto finance has seen rapid growth (c.9% p.a. 2011-15), but are forecast to remain broadly flat to 2020 (c.0.5% p.a.). Going forward, this is expected to slow significantly due to

i. a reduction in pent up demand post financial crisis; and

ii. the expected rise in interest rates increasing the cost of finance

Equipment and auto investment

• Increasing regulatory scrutiny on loan sales practices, mainly in the auto market (e.g. BMW was fined in August 2016 for selling loans to consumers who could not afford them), could drag on growth as more strenuous qualifying criteria are applied to those applying for new loans, reducing loan approval rates

• New FASB accounting standards (compulsory in 2019 for public companies/2020 for all) will see operating leases treated the same as financial leases: they will no longer be permitted to be treated as off-balance sheet items. This is likely to diminish their value as a financial instrument, although clarifying a complex set of accounting practices that may historically have deterred some potential lessees from taking out leases

Regulation

• Increasing penetration is supported by supply side factors, e.g.

Increasing incentives from captives to shift increasing volumes generated by improvements in manufacturing capacity

digitisation of the asset finance industry is supporting growth of new entrants on two fronts. Firstly, new innovative peer-to-peer finance models are creating new asset finance providers (e.g. Lending Club for small business loans) as well as the development of the sharing economy creating new modes of using vehicles and equipment (e.g. Uber)

Asset finance penetration

• Commercial loan credit supply is tightening slightly (senior loan officers report tightening standards for last four quarters in FED surveys) in line with initial and expected Federal Reserve rate rises from historic zero rates expected over the forecast period, with the consensus view for 2018 and beyond at c.2-3% (from current levels of 0.75%)

• Metrics of financial stress (e.g. St. Louis Fed Financial Stress Index) are at low levels indicating a healthy credit market, however increasing supply of sub-prime auto loans (to c.22% vs. 2010 levels of c.18%) and the settling of delinquency rates at higher levels than historically (c.3% vs. 2% pre -2008) represent some risk

Credit conditions

Asset finance market value Outlook (2015-20) – Key: PositiveNegative NeutralDriver importance: 4 Highly important 1 Less important

4 3 3 2 2

Economic environment Equipment and auto investment Regulation Asset finance penetration Credit conditions

Source: Oxford Economics, OECD, Trading Economics, Bureau of Labor Statistics, Tax Policy Center, Federal Reserve, ELFF, BEA, FT, Edmunds, Wall Street Journal, PwC analysis

PwC

European asset finance market growth is being driven by penetration increases and benign credit conditions, but Brexit provides an uncertain economic and political backdrop


6January 2017

2

• The European economy is forecast to continue to grow at modest levels through 2020 (real GDP at 1.4% p.a.) with historical low unemployment in the UK and Germany (4.8% and 4.1% respectively), and declining levels in other key markets

• Improving performance of the leasing industry as indicated by the Leaseurope Index pre-Brexit, was a positive indicator, however, Brexit is likely to continue to cause economic/ political uncertainty through 2018 in the UK and to some degree in the EU, affecting business confidence and resulting in investment decisions being put on hold (e.g. in August, Business Sentiment fell to a near 3 year low of 0.02 in the Eurozone)


• Investment growth has rebounded in Europe since 2014, with Sweden (4.5% p.a.) and the UK (5.2% p.a.) outperforming the key leasing markets in Europe (2.3% p.a.) during 2010-15

• The European new car market has seen low volume growth in the past (c.0.5% p.a. during 2010-15), with individual markets performing more strongly (e.g. UK 5.3% p.a.). Growth is expected to increase slightly going forward

Equipment and auto investment

• New banking regulation relating to capital requirements and credit risk (e.g. CRD IV) to be implemented by the EU puts pressure on both banks and captives with banking licenses that could reduce the activity of some players in the market

• In the UK, the increase from £25k to £200k in the amount of capital used for investment that can be deducted from tax could disincentivise leases in favour of buying assets outright (this is likely to mainly affect SMEs)

• The new lease accounting standard IFRS 16 (to be implemented in January 2019) may have an impact in the way leasing is structured but unlikely to substantially affect the demand for leasing

Regulation

• Penetration of leasing is low across Europe (20% on average across a selection of 22 European countries), particularly accentuated amongst countries in the south, presenting significant headroom for growth

• In common with the US, increasing penetration is also supported by supply side factors:

- Increasing incentives from captives to sell increasing volumes generated by improvements in manufacturing capacity

- Digitisation of the asset finance industry supporting growth of new entrants (e.g. Funding Circle – peer to peer small business loans and Uber –sharing economy)

Asset finance penetration

• ECB’s and BoE strategy remains supportive of maintaining credit supply through the continued application of low interest rates, with rate rises in the UK and the EU now not expected until 2018-19 at the earliest

• Loan loss provisions have declined by c.9.2% p.a. during 2010-15 indicating a healthier leasing industry status than in the past, providing confidence for continued supply into the forecast period

Credit conditions

1 Less important

4 3 3 2 1

Economic environment Equipment and auto investment Regulation Asset finance penetration Credit conditions

Source: Oxford Economics, White Clarke Group Europe Asset Finance Survey 2016, OECD, Statista, ACEA, ONS, Destatis, Reuters, PwC analysis

Outlook (2015-20) – Key: PositiveNegative NeutralDriver importance: 4 Highly important 1 Less important Asset finance market value

PwC

Within Europe, most key markets are expected to see modest growth, although the UK is expected to see diminished performance due to the EU referendum result


7January 2017

2

Source: PwC Interviews, Next Continent, WCG, Press search, Company reports, Bank of Italy, Associazione Italiana Leasing (Nov ’15)

• After a period of strong performance in both equipment & auto, supported by benign economic conditions, investment in both equipment and auto is expected to slow. In auto, historically strong growth in car sales is expected to taper as demand for new cars weakens and interest rates gradually rise (albeit likely only very gradually). Equipment finance may be impacted negatively by political and economic uncertainty triggered by the Brexit vote as some investment decisions are delayed


• Equipment finance is expected to keep pace with the economy, as economic uncertainty has led companies to hold back investments in areas such as IT and plant machinery

• Auto finance is expected to continue to grow mainly through penetration in private car leasing

• Future growth in auto should be supported by banks continuing to provide new credit and leasing products as well as increasing penetration

• Equipment finance is expected to increase in line with the economy, with renewed support for financing since 2014 continuing

• For both auto and equipment finance, leasing and lending to consumers and the manufacturing industry is likely to grow as positive trends seen since 2014 continue, supported by increasing penetration

• Sweden’s asset finance growth has been supported by its high-end manufacturing base and the growth in private car leasing

• Further market growth is expected to be supported by increasing penetration in SMEs via lease aggregators, and development of new products (e.g. micro-leases with short lease terms)

AutoEquipment

Outlook (2015-20)

Outlook (2015-20) – Key: PositiveNegative Neutral

PwC

Source: Monitor 100, PwC analysis

In the US, small and medium sized providers have experienced growth outpacing the top end of the market as technology and specialised offerings have enabled market share gains


8January 2017

3

55%

28%

13%

10%

9%

9%

3%

3%

21%

50%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2015

100+

51-100

21-50

11-20

1-10

$390bn$253bn

CAGR

2011-15

38.2%

14.5%

11.5%

5.7%

(5.6%)

A reasonable

proportion of the

drop was driven

by GE Capital

disbanding

101+

US equipment provider consolidation, NBV, 2011-15

• The US asset finance space has seen fragmentation from 2011-2015, driven by new providers in both the equipment and auto space

• In equipment, a large amount of fragmentation took place from 2011-15, driven by:

- GE Capital renouncing its position in the market (accounting for c.14% of the market in 2011)

- New providers driving market growth by increasing penetration of underserved customer groups, regions and asset classes

• In auto, some fragmentation is expected to have taken place, due to improved technology and niche propositions from new and mid-market players. The level of fragmentation is unlikely to be as great as in equipment

Provider

ranking by

NBV:

PwC

Europe lease provider concentration, 2011-2015

• The European leasing space has seen fragmentation from 2011-2015 due to attractive investment returns, with a long tail of small providers gaining share of c.7 ppt of the total leasing market

- The share of the top 10 providers has remained stable over time, the increase in share of the tail (providers outside of the top 70) has been predominantly due to a reduction in share of the top 11-20

• New entrants are following an organic build strategy rather than buying established participants to gain a market presence immediately

- Although Europe as a whole has been fragmenting, there are differences on a country basis

- Markets such as the UK, France, Germany and the Netherlands are relatively consolidated with c.10-15 lease providers controlling c.75% of the market

- However, Sweden for example is much more fragmented – Nordea has a strong market leading position but there are few other sizeable providers

Similarly, the European leasing market is becoming more fragmented, as new providers are entering the market and increasing share


9January 2017

3

Source: LeaseEurope, PwC analysis

Top 70 share 57% 50%

PwC estimate

for top 100– 56%

32% 31%

13% 9%

10%

9%

1%

1%

43% 50%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2015

Sh

are

of

lea

sin

g (

%)

Other

51-70

21-50

11-20

1-10

$331bn$265bn

CAGR

2011-15

5.8%

7.7%

4.0%

3.9%

(4.7)%

4.5%

Total

71+

Provider

ranking by

NBV:

PwC

Current global market size for specialist asset finance software and services, 2015, $m

Global market split by revenue stream, $m, 2015

• This market size is the estimated current spend on specialist asset finance software and services globally, for both auto and equipment assets

- Software spend includes licence and maintenance

- Services includes implementation, customisation and hosting (where applicable)

The specialist software and services market serving the asset finance industry is worth c.$1bn globally. The US accounts for c.40% of the market and Europe c.30%


10January 2017

4

1,050

-

200

400

600

800

1,000

1,200

2015

1,050

2015

Services,

555 / 53%

Maintenance,

356 / 34%

Licence,

138/ 13%

Rest of world,

306 / 29%

Europe,

309 / 29%

US,

435 / 41%

Source: PwC analysis

PwC

There is significant headroom for growth as many asset finance providers do not use specialist software solutions


11January 2017

5

Source: PwC analysis, PwC survey (Nov 2016)

Specialist , 36%

In-house , 34%

ERP, 25%

Manual , 5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

There may be some blurring between in-house (i.e. customised) and ERP solutions, if buyers have customised on top of limited generalist functionality

$2,880m

Current market size,

1,050

Headroom, 1,830

-

500

1,000

1,500

2,000

2,500

3,000

3,500

$2,880m

Value penetration of market by type of solution provider, 2015Asset finance software and services market size vs potential headroom, $m

PwC

For asset finance companies above a certain size, alternatives to specialist software for the core in-life functionality are not necessarily fit for purpose

Available solutions to fulfil in-life functionalities


12January 2017

5

Manual ERP In-house, customised solution Specialist solutions

Description Use of manual or very simple software tools

Use of ERP’s lease/loan accounting module (with some minor customisation)

Use of in-house developed or heavily customised third party solution

Use of a third party’s specialist solution (with some minor customisation)

Example solutions

Pros • Inexpensive to run if portfolios of assets are small/non-complex

• Simple accounting functionality may be fit for purpose for smaller/ less complex lessors

• Ability to use one system (e.g. ERP) throughout company

• Ability to design system to meet precise business rules and requirements of buyer (includingdepth/breadth/workflow)

• Minimal manual work required once implemented

• Deep and broad functionalityavailable (e.g. asset-by-asset depth; potential end-to-end system), including workflow between business functions

• Minimal manual work required once implemented

Cons • Highly manual, entailing significant costs for management and reporting if asset base grows

• Risk of non-compliance and ‘human error’

• Simple functionality lacks deep asset-by-asset detail

• Lack of automation/workflow with other asset finance business functions means significant manual workarounds required

• Workarounds can be expensive and time consuming

• Significant investment required to develop and maintain quality product

• Requires highly skilled internal IT team/external consultants who understand industry

• Significant investment required to implement and tailor to requirements

MS Excel MS Access SAP Oracle BMW Cassiopae Alfa

PwC

This is also true for the front office, with the notable exception of a number of well regarded specialist point solutions

Available solutions to fulfil originations and point of sale functionalities


13January 2017

5

Manual Tailored CRM products In-house developed solution Specialist point solutions Specialist asset finance solution

Description Use of manual or very simple software tools to source leads and manage proposals

Use of a tailored CRM solution

Use of in-house developed or heavily customised third party solution

Use of a solution that only serves the front office within the asset finance lifecycle (note vendors may have other business areas outside of asset finance front office)

Use of a third party’s specialist solution (with some minor customisation)

Example solutions

Pros • Inexpensive if managing a small number of leads or proposals

• Inexpensive alternative to full front office system

• Ability to design system to meet desired customer journey

• Able to drive workflow efficiencies across both front and back office

• Minimal manual workrequired once implemented

• Some are seen as industry standard (e.g. Dealertrack for US auto)


• Wide breadth of solutions available (and able to be configured to niches as required)

• Able to drive workflow efficiencies across both front and back office


Cons • Highly manual• Risk of non-compliance

and ‘human error’

• May require significant manual workarounds if not used in conjunction with an originations/POS solutions

• Significant investment required to develop andmaintain quality product

• Requires highly skilled internal IT team/external consultants who understand industry

• Solutions typically focus on one niche – so only suitable for one product type within a certain region

• Significant investment required to implement and tailor to requirements

MS Excel Salesforce BMW Dealertrack Cassiopae Alfa

PwC

The specialist asset finance software and services market is expected to grow at c.7% p.a. to 2020 to reach >$1bn in the US and Europe (and $1.5bn globally)


14January 2017

6

Note: Rest of World accounts for c.40% of the global market. Source: PwC analysis

US – specialist asset finance software market, 2010-20, $m Europe – specialist asset finance software market, 2010-20, $m

ForecastForecast

168 190

214 241

273

309 330

353 378

405 435

-

100

200

300

400

500

600

700

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

247 276

309

346

388

435 463

494

527

564

604

-

100

200

300

400

500

600

700

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

PwC

Growth in the specialist asset finance market will be driven by market share wins from ERP and in house providers, coupled with growth in the end market (1 of 2)

Global specialist asset finance market growth by growth driver, 2010-2020, $m


15January 2017

6

Source: PwC analysis, PwC Survey (Nov 2016)

Forecast

% of growth 2010-15

50% 48%3% % of growth 2015-20

26% 65%9%

586

230 12

221 1,050

109 37

269 1,465

-

200

400

600

800

1,000

1,200

1,400

1,600

2010 Growth in endmarket

Spendincreases on

specialistsoftware

Penetrationgrowth

2015 Growth in endmarket

Spendincreases on

specialistsoftware

Penetrationgrowth

2020f

1 2 3 1 2 3

PwC

Growth in the specialist asset finance market will be driven by market share wins from ERP and in house providers, coupled with growth in the end market (2 of 2)


16January 2017

6

Source: Interviews, PwC analysis

• The total volume of financed assets has been growing rapidly but is expected to taper in both the US and Europe driven predominantly by the slow down in new car sales in both regions (per end market description in previous pages)

• Despite on-going fragmentation of the asset finance providers (driven by disruptors), we expect the vast majority (c.90%) of assets to remain within asset finance companies that would be serviceable by specialist software

Volume of assets in market & fragmentation of financed assets

Licence spend

• Despite slowing end market volumes, some asset finance companies are purchasing increasingly comprehensive specialist software, increasing the average licence fee paid. This is due to:

- Greater demand for greater pre-configuration likely to increase licence spend

- Steady proportion of upgrades to systems with ‘better’ functionality which is increasingly defined as the level of granularity and degree to which it can improve workflow and efficiency

• Buyers typically appear profitable, which supports on-going licence spend (albeit delayed if exceptional circumstances arise e.g. recession)

Spend on specialist software and services per financed asset for existing buyers Penetration

Maintenance and services spend

• We expect new maintenance contract pricing to remain flat at 18% of licence fees. This will be uplifted by annual price increases of ‘CPI plus’ of 3% (based on historical averages)

• We expect overall services spend to increase slightly, supported by:

• Man day rates which are expected to remain robust at c.$1.25k due to relative talent scarcity in this specialist field

• A marginal net increase in the number of services man days purchased, driven by:

- A greater number of front office installations as buyers seek to improve customer experience

- An increasing amount of pre-configured software (growing from 7.5% of deployments to 10% by 2020) which depresses man days volume

• Hosted deployments are a small proportion (10%) of new deployments currently, which is expected to increase to 18% by 2020. The impact on pricing is likely to be marginally positive due to an additional ‘hosting’ charge

Specialist asset finance software and services market

2 1 1 3

Economic environment Equipment and auto investment Regulation

1 2 3

Penetration of companies

Penetration has increased from 62% to 65% of companies from 2010 to 2015, and we expect this to continue to grow marginally to 68% in 2020. This growth will be concentrated largely amongst smaller companies whose current in-house/generalist solutions are old/not fit for purpose

Specialist share consolidation

Specialists’ share of modules is likely to increase, from 54% to 63% driven by consolidation of systems as specialists replace a fragmented environment of solutions, plus predominantly driven by front office installations across a variety of channels (e.g. desktop and mobile) due in part to asset finance suppliers’ response to margin compression challenges

3

Outlook (2015-20) - Key:

PositiveNegative NeutralDriver importance:

0 Little impact on market growth

4 Significant impact on market growth

PwC

Buyers believe that their overall spend on software and services will increase in the coming years, with c.10% growth in annual spend expected by 2020…

Specialist asset finance software buyers views on historic and future spend on asset finance software and services, n=56

Q: Thinking about your company's average spend per year [over the past 5 years/in the next 5 years], how much [has/will] your company’s spend on specialist asset finance software [changed/change]?


17January 2017

6

14% 8%

14%

74%

45%

10%

15%

7% 11%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Past 5 years Next 5 years

Decrease a lot (20%+ decrease)

Decrease somewhat (5 - 20% decrease)

Stay the same (0%)

Increase somewhat (5 - 20% increase)

Increase a lot (20%+ increase)

Source: PwC Survey (Nov 2016)

PwC

…driven predominantly by an increasing volume of services that buyers believe they will procure

Proportion of buyers who have increased/will increase spend on specialist asset finance software and services, by reason for increased spend, n=32,40

Q: What are the key reasons for thinking that your company has/will spend more on its asset finance software


18January 2017

6

24% 29% 27%

22% 19%

28%

55%

27% 30%

5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Increased number of modules/ services licenced from the

provider

Increasing amount of servicesbought (e.g., consulting,

implementation, customisation)

Price increases (inflation) Growth in core business (e.g.,more contracts, greater value

of assets financed)

Change to buy morecomprehensive / detailed

software that is moreexpensive

Past 5 years Next 5 years

Survey results for this category

run somewhat counter to strong

qualitative evidence from

interviews with buyers and

market commentators

suggesting that buyers

increasingly value greater

product granularity

Source: Survey (Nov 2016)

PwC

Asset finance software specialists Illustrative

Amongst asset finance specialists, Alfa, Cassiopae, FIS and White Clarke are part of a group of leading Tier 1/2 providers, clearly distinguishable versus firms servicing tier 3/4 clients


19January 2017

7

• Tier 1/2 customers are asset finance providers with >$500m of assets financed –tier 3/4 have <$500m

• Most ‘global’ providers have notable presence in the US and Europe with a less mature proposition in other regions

- NetSol are the main exception and are a supplier with a significant presence in AsiaPac

• Global providers are of European or US origin and have expanded to operate across other regions in the last 5-10 years

• Developing market share in new regions can take time as success depends on having a local track record

Source: Company websites, Public Information, Interviews, PwC analysis

Target

customer

size

GlobalCountry

focusGeographical coverage

In country and

pan-European

providers with

Tier 3/4 focus

‘Global’ providers

focusing on Tier 1/2

customers

LeaseTeam

Liscor

CIC Group

Copernicus

Sofico

TotalSoft

Banqsoft

Leasepath

IFS

Linedata

Defi solutions

Odessa

Fiserv FIS

White Clarke

Alfa

Cassiopae

NetSolIDS

Shaw

Systems

Tier 1

Tier 2

PwC

Illustrative

Within Tier 1 / 2 specialists, White Clarke Group and Alfa appear to have the broadest functionality and offering


20January 2017

7

Source: PwC analysis

Note: Based on exact ratings for functionality (including back office in-life functions and front office) and breadth of offerings (asset classes and finance type covered) per pp. 23-4

All asset classes and

finance types covered

Asset finance software specialists – Tier 1 / 2 suppliers only

Functionality

Focused asset

class and finance

types covered

Breadth of offering

Strong front

and back

office

Capable

front or back

office, limited

other

Alfa

FIS

Fiserv

White Clarke

Cassiopae

NetSolOdessaIDS

Shaw

Systems

White Clarke Group and Alfa –both British based suppliers –

have the strongest functionality and broadest coverage of asset

and finance types

PwC

The majority of these Tier 1/2 suppliers are present in the US and UK. Fiserv and FIS are the largest companies by revenues and employee numbers, however they offer a much broader suite of products

End-to-end specialist asset finance software providers: company overview


21January 2017

7

Supplier Company description HQ Ownership

Sales20151

$m

EBITDA margin20151

No. employees2

Office locations

UK FR DE SG CN IN AUOther

Alfa Asset finance specialist UK Private 83.0 45% 260 ✔ ✔ ✔ ✔ ✘ ✘ ✘ ✔SE, PL,

NZ

Cassiopae Asset finance specialist France Sopra 34.9 (15%) 500 ✔ ✔ ✔ ✔ ✘ ✔ ✔ ✘ KR

FISCore banking software

providerUS Listed 6,595.2 28% 55,000 ✔ ✔ ✘ ✘ ✔ ✘ ✘ ✔ -

Fiserv Financial services software US Listed 5,066.0 30% 22,000 ✔ ✔ ✘ ✘ ✔ ✘ ✘ ✘ MX

IDS Asset finance specialist US Private n.a. n.a. 250 ✔ ✔ ✘ ✘ ✔ ✘ ✔ ✔ -

NetSol Asset finance specialist Pakistan Listed 51.1 14% 1,500 ✔ ✔ ✘ ✘ ✘ ✔ ✘ ✔PK, ID,

TH

Odessa Asset finance specialist US Private 37.5 n.a. 450 ✔ ✘ ✘ ✘ ✘ ✘ ✔ ✘ -

Shaw Systems

Asset finance specialist US Private n.a. n.a. 100 ✔ ✘ ✘ ✘ ✘ ✘ ✘ ✘ -

White Clarke

Asset finance specialist UK Private 50.9 13% 500 ✔ ✔ ✘ ✔ ✘ ✔ ✔ ✘ AT

US Europe AsiaPac

Note 1: Revenue converted to USD at year average. Latest financial data available for Cassiopae is 2014 and 2016 for Odessa Technologies;Note 2: Number of employees estimated based on information availableSource: Company websites, LinkedIn, Interviews, Orbis - Bureau van Dijk.

Fiserv and FIS’s broader offering mean they are not directly comparable

Illustrative

PwC

Alfa and Cassiopae have been by far the fastest growing suppliers by revenue; Alfa has also maintained industry leading EBITDA margins. Average levels sit at c.11% revenue growth with EBITDA margins of 16%

Financial performance of selected suppliers2


22January 2017

7

Note 1: Financial performance based on the period 2013 – 2015 for Alfa, NetSol, White Clarke and NetSol, and 2012 – 2014 for Cassiopae and Banqsoft; Note 2: Financial data not available for Shaw, IDS and Odessa technologies; Source: Orbis - Bureau van Dijk, Company reports.

(10%)

0%

10%

20%

30%

40%

50%

60%

(15%) (10%) (5%) 0% 5% 10% 15% 20% 25% 30% 35%

EB

ITD

A m

arg

in (

avg

. la

st

3 y

ears

1)

Revenue CAGR (last 3 years1), %

EBITDA not available

Bubble size =

c.$80m revenue

Key:

Tier 1/2

provider

Tier 3/4

provider

Average, 16%

Average, 11%

Alfa

CassiopaeBanqsoft

White

Clarke

Linedata

NetSolLiscor

PwC

All of the Tier 1/2 products have been updated in their lifetime but the Java and .net based modern code bases of some providers are in stark contrast to the legacy mainframe solutions

End-to-end specialist asset finance software providers: Product specification and breadth of market coverage


23January 2017

7

Source: Company websites, Interviews024

Doesn’t cover asset / finance type

Covers asset / finance type but less tested / recently developed

Track record covering asset / finance type

Key:

SupplierCore product

nameCurrent version

Release year of current

version Platform

Asset class coverageType of asset finance

covered

Auto Equipment Lease Loan

Alfa ALFA v5 2009 Java 4 4 4 4

Cassiopae n.a. v4 2010 Java 4 4 4 4

FIS n.a. n.a. n.a. .net 4 2 2 4

Fiserv n.a. n.a. n.a. Mainframe 4 2 4 4

IDS Infolease v10 2014 Mainframe 0 4 4 4

NetSol LeaseSoft v8 n.a. .net 4 4 4 4

Odessa LeaseWave v5 2015 .net 2 4 4 4

Shaw Systems n.a. n.a. n.a. Mainframe 4 2 0 4

White Clarke CALMS n.a. n.a. Java 4 4 4 4

NetSol has developed Ascent, a new .net product. The product was only released in 2016 so has few users to date

Illustrative

PwC

Most solutions provide end-to-end functionality, but Alfa stands out for the core in life function; White Clarke scores well for its front office offerings

End-to-end specialist asset finance software providers: Product functionality


24January 2017

7

Source: Company websites, Public information, Interviews

✘02Doesn’t provide functionality

Provides functionality but interviewees perceive capability is below market average or functionality is incomplete

Provides functionality

Provides functionality and interviewees perceive capability is above market average4

Key:

Alfa Cassiopae FIS Fiserv IDS NetSol Odessa Shaw Systems White Clarke

In-life functions 4 2 0 2 2 0 0 2 2

End of life functions 2 2 0 2 2 0 2 0 2

Front office 2 2 2 2 0 2 2 2 4

Comments Alfa has developed a back office led product which is recognised as being particularly strong for back end functionality (front end is perceived in line with other products)

Cassiopae scores well against other products and performs consistently across different functions

FIS’s back office does not have supplier management functionality in the back office.The product was developed out of a loan focused solution reflecting reports that end-of-life lease management is behind other offerings

Fiserv’s product is perceived well across the market, with a particular strength in its originations module (part of the front office)

IDS’s front office performs less well than other solutions and buyers reported occasions where users were having to use work around solutions

NetSol’s back office does not have supplier management functionality.Further, its ability to manage the end-of-life process was perceived to be modestly behind other offerings

Odessa’s back office does not have supplier management functionality

Shaw’s product was developed out of a loan focused solution reflected by reports that end-of-life lease management is behind other offerings

The front officeof White Clarke Group is strong; buyers commend its modern interface, functionality and digital proposition

Ba

ck o

ffic

e

User requirements for end of life functions is limited therefore there is little ability to differentiate

Illustrative

PwC

There are several factors which influence a customer’s purchasing decision: ability to use one system, interoperability with other vendors and track record are the most significant

25January 2017

8

Source: PwC survey (Nov 2016), PwC interviews

Importance of KPCs, weighted average (1 = very unimportant, 5 = very important), n=56

Value for money and speed of implementation are less important as customers understand the cost and time required to deploy a new mission critical system

The most important purchase criteria are one consolidated solution, interoperability with other vendors, track record and functionality

3.66

3.70

3.70

3.71

3.73

3.77

3.77

3.79

3.80

3.88

3.93

3.95

3.95

Granulairity of Configuration

Asset class specialisation

Speed of implementation

Customer support services

International coverage/scale

Choice of deployment model

Implementation executed by software provider’s in-house team

Value for money

Payment model

Best of breed’ or very strong solution for specific functionalities

Strong track record of delivery

Partnerships/interoperability withother vendors

Ability to use one consolidatedsystem throughout entire business


PwC

There has been some M&A amongst asset finance software suppliers with the most significant being the acquisitions of asset finance specialists by broader software providers…

…which makes for a compelling proposition for banking customers versus standalone specialists

There have been a few notable examples of asset finance software supplier consolidation in recent years, including the purchase of asset finance specialists by broader groups (e.g. FIS SunGard and Sopra Cassiopae)


26January 2017

9

Source: Press releases, Mergermarket, Interviews

• There are now 3 broader software suppliers with asset finance specialism targeting Tier 1/2 customers (FIS, Fiserv, Sopra/Cassiopae)

- Sopra acquired Cassiopae in 2016. Cassiopae currently operates as a standalone supplier, however there is the potential it could pursue a more integrated go-to-market strategy with Sopra in the future

• A broader proposition (including e.g. customer billing, fraud detection, AML solutions, etc.) is compelling to banking customers in particular due to ease of use and consistency considerations across the bank’s full portfolio

• For independents this trend represents increasing competitive intensity in the market, particularly in the pursuit of banking customers; at the same time it also offers the prospect of interesting new partnership opportunities (e.g. with Fiserv who is yet to make any such acquisition)

2011

Field Solutions

2012

2013

2014

2015

2016

SNEDAReal estate solution

Disoft Solutions

Singhammer Software

TalianceReal estate solution

Acquisition of asset finance specialists

FIS acquires SunGard

Sopra acquires Cassiopae

Logo acquires TotalSoft (European Tier 3/4 supplier)

Cassiopae acquisitions

Prior to the acquisition FIS’ specialist asset finance software was focused on auto. SunGard included an established equipment finance solution

This publication has been prepared for general guidance on matters

of interest only, and does not constitute professional advice. You

should not act upon the information contained in this publication

without obtaining specific professional advice. No representation or

warranty (express or implied) is given as to the accuracy or

completeness of the information contained in this publication, and, to

the extent permitted by law, PricewaterhouseCoopers LLP, its

members, employees and agents do not accept or assume any

liability, responsibility or duty of care for any consequences of you or

anyone else acting, or refraining to act, in reliance on the information

contained in this publication or for any decision based on it.

© 2017 PricewaterhouseCoopers LLP. All rights reserved. In this

document, “PwC” refers to the UK member firm, and may sometimes

refer to the PwC network. Each member firm is a separate legal

entity. Please see www.pwc.com/structure for further details.

161228-184344-BM-UK

Contact

Barry JaberPartner, UK Technology Industry Strategy Leader

T: +44 (0)20 7213 3522E: [email protected]

Glossary:

Asset finance market – the value of loaned and leased assets including cover ‘auto’ passenger cars and ‘equipment’ such as machinery, commercial vehicles, IT equipment, healthcare products and aircraft; note Real Estate is excluded

Asset finance specialist software and services market – spend on dedicated 3rd party software supporting the critical operational workflows of banks, captives and independent providers and services required to implement, maintain and develop the software on behalf of customers

Asset finance specialist software suppliers – software providers predominantly focused on serving the critical operational workflows of asset finance customers; suppliers may provide services in conjunction with software or outsource this function to another party

Back office – in-life and end-of-life management of the asset and finance product

In-life functions – activities to manage the asset and finance product for the duration of the lease/loan term, including: contract, customer, asset and supplier management (as applicable)

End-of-life functions – activities to process the termination of a contract including settlement and any remarketing of the asset (as applicable)

Front office – origination and point of sale functionality to manage the quotation through the proposal stage, including credit scoring (as applicable)

FASB – Financial Accounting Standards Board

IFRS – International Financial Reporting Standards

CRD IV – Capital Requirements Directive IV

Market study on the asset finance software market - PwC UK · PDF filePwC US asset finance...

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