Monday 14 August 2023

Temenos on the up as sale talks continue

TemenosThe latest results from Swiss-based Temenos reflect an improved performance by the global banking technology vendor, despite the challenging macro-economic environment. For the six months ended 30 June 2023 revenue was $465.5m, up 1.5% on the same period last year, as total software licensing grew by 5.7% to $195.1m. Temenos also delivered an increased profit of $68.9m (up 7.2%).

Commenting on the results, Temenos’ interim CEO, Andreas Andreades (who stepped in following the departure of Max Chuard in January), expressed his satisfaction with the ongoing improvement. Andreades highlighted the 14% growth in Annual Recurring Revenue (ARR) in Q2 as a particular highlight emphasising that Temenos’ transition to a recurring revenue model is progressing well. The vendor has also reported strong subscription license signings and its highest ever quarterly SaaS ACV.

Temenos has been making the transition to a SaaS model and moved to selling five-year subscription contracts as standard from 2022 (including renewals). The transition is expected to be substantially complete by the year-end. This is a major but essential step for any software company, in order to ensure long-term competitiveness in the face of changing buying patterns. Such a move requires something of a leap of faith, both from leadership and stakeholders.

Temenos’ US operations, which had contributed to the vendor’s FY22 dip in performance (see: Chuard steps down as Temenos looks to the future) are showing encouraging signs. A particular highlight being the recent contract win at B2B payments provider, Convera. Temenos has been selected to modernize Convera’s cloud-based payments software, a deal which the vendor secured whilst in direct competition against a number of the leading US core banking vendors. In H1 Temenos was also selected by a top 20 regional US bank to modernise the core of its UK commercial banking operations.

Temenos saw a sequential improvement in Europe during the first half of 2023, with the vendor reporting a strong pipeline. As a result, Temenos expects the recent recovery to be ongoing in H2. Meanwhile, APAC has continued to perform in line with expectations. As a result of the improving outlook, Temenos has raised its guidance for ARR, reflecting the strength of its performance in the first six months of the year.

Temenos continues to face pressure from a small number of activist investors, in part due to the company's recent share price volatility. In particular, Petrus Advisers (which now holds around 4% of Temenos stock) has been particularly vocal in its demand for change. Meanwhile, Temenos’ leadership is continuing look for a buyer for the company, having invited expressions of interest in 2022. The vendor is currently thought to be in detailed discussions with at least one interested party. According to reports, negotiations with Swedish-based, Nordic Capital are ongoing as the parties discuss a deal potentially worth up to $7bn. Thoma Bravo and Permira are understood to be two other potential bidders that have recently withdrawn from acquisition talks.

Whatever the future holds for Temenos in terms of its ownership, the Swiss vendor remains at the forefront of technology innovation in the banking space. Temenos has always invested heavily in research and development, and this has led to the company consistently being amongst the early adopters of the latest emerging trends. Having been one of the first major core vendors to embrace cloud native technology and collaborative innovation, Temenos has also demonstrated a similar stance on embedded finance and Banking as a Service (BaaS) via a series of recent acquisitions (see: BaaS and embedded finance drive banking evolution).

Posted by Jon C Davies at '11:22' - Tagged: acquisition   M&A   banking   Temenos