Electronic Commerce: Software Firm Takes Wholesale Path into U.S

Article excerpt

The German software company Brokat has entered the United States with a focus on the wholesale side that is unusual given its success with retail systems in Europe.

Though the company has a market capitalization of $1.2 billion, it approaches the United States with an Internet start-up mentality. And in contrast to the way in which Brokat has established itself as one of Europe's most dynamic vendors to the financial community, particularly on the retail side, it entered this country by focusing on corporate cash management.

"We don't play the card that we're a European vendor," said Stefan Roever, 34, co-founder and chief executive officer of Brokat Infosystems AG.

What counts is that "we have products, clients, and capital" that give Brokat firepower to buy American companies.

"For years it was always the other way around," Mr. Roever said of cross-border acquisitions. "We plan to grow through acquisitions."

Two weeks ago Brokat made its first U.S. deal, adding heft to Brokat Infosystems Inc., a 30-employee subsidiary established last year in Alpharetta, Ga.

The target was Transaction Software Technologies Inc. of Atlanta, a provider of cash management software to 17 of the 30 largest U.S. financial institutions.

The $18.7 million deal would help Brokat diversify from its base in retail banking and brokerage software. Its Twister middleware, which connects front-end applications to existing back-end systems, would unite retail, brokerage, and wholesale systems in a common infrastructure.

Brokat is marshaling forces to compete with Security First Technologies Inc., the largest U.S. provider of Internet banking systems. This Atlanta company, known as S1, said last week that it had agreed to buy Edify Corp. and FICS Group for a combined $1.4 billion.

Just as Brokat turned to TST-with which it had a working alliance-S1 sought out Brussels-based FICS with a wholesale-based rationale.

Brokat and TST pose "the only real competition" to the bulked-up Security First, said Octavio Marenzi, research director at Meridien Research in Newton, Mass. The two companies "in time will compete closely on the wholesale banking side around the world," Mr. Marenzi said.

Brokat intends to buy other U.S. companies and is planning a secondary stock offering to finance the deals. Brokat raised $50 million in an initial offering last September on the Neuer Markt, a subsidiary of the Frankfurt Stock Exchange that lists 100 technology companies.

In the next two or three years, Mr. Roever said, Brokat would like to be on the Nasdaq market. But that depends on developing "a significant U.S. revenue stream," he said.

Mr. Marenzi said Brokat's only chance of gaining a significant U.S. presence would be through acquiring a vendor of Internet banking software. Brokat "needs to go one step further and have a packaged solution," the analyst said. "It will feel pressed to buy something."

Twister software serves 1,600 financial institutions worldwide in 100 installations, some through shared arrangements. It serves more banks with its Internet banking software than any other company.

The middleware lets banks' back-office computers serve customers through alternative channels such as mobile phones, personal computers, smart cards, call centers, or branches.

"We'd like to be regarded as the SAP of the front office," Mr. Roever said, referring to the German company that leads the enterprise resource planning market, serving corporations' administrative needs.

The formation of Brokat began at the end of 1994, and five founders formally launched it in 1995. Its big breakthrough came in 1996 when AOL Bertelsmann, America Online Inc.'s joint venture with the German media giant Bertelsmann AG, hired Brokat to build a banking platform. …