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Rate of Exchange

A group of four product providers, including Norwich Union, Standard Life and Aegon, are understood to have been in talks to buy the portal, a move that would mark a step-change for the business. All three firms have refused to comment on whether there is any deal and Prudential says it is not the fourth provider in the consortium.

After Marlborough Stirling bought The Exchange FS Group in 2001 for £87.2m, the portal did not attach itself to any IFA affinity groups, preferring to define itself in terms of its independence rather than distribution.

But following the 2004 interim results in September, former Marlborough Stirling chairman Huw Evans said the group recognised The Exchange&#39s role and potential to change the industry through straight-through processing and e-trading. He revealed that as providers are increasingly committed to electronic trading, the group had opened discussions to look at ways in which they would help with the group in expanding the portal&#39s role.

Most technology experts believe the financial services industry is moving towards an environment where transactions provided by wraps become as important to their business as the underlying investments. Some providers are already looking at building their own proprietary open architecture wrap platform.

The three providers understood to be interested in The Exchange are all part of the Sapphire project, a plan to design a multi-tie technology solution as an extension of The Exchange.

A consortium of providers working together to build their own wrap proposition could use The Exchange portal as a starting point. Technology consultants believe any platform built simply to funnel business in the direction of one particular provider is doomed to failure but that collaborative efforts could be much more successful.

Online transactions services are already provided by portals such as The Exchange and some IFAs – Hargreaves Lansdown has the Vantage system. These transaction facilities do not include products such as insurance bonds, certain types of bank accounts and property. Valuation services are completely different and show the whole of a client&#39s portfolio There is speculation in the market that some companies could run out of money before they get to the stage where they can launch a fully functioning wrap.

But a group of providers building a platform would share the cost and risk and ensure a degree of stability. The benefits of working as a consortium to build a wrap platform are not just financial but would also mean that each of the providers&#39 systems would end up being compatible with the other four.

Technology experts who promote open architecture platforms believe this would be good news for the industry and the consumer because they would lower transaction costs without hitting profit margins.

Royal Liver signed a 10-year deal with The Exchange in March to outsource all its protection business through the portal, billing the move as the creation of the first online life office. The mutual hoped the move, which will generate an estimated £25m in revenues for Marlborough, would give the life office more control over the running of the operation, which offers an entirely paperless system.

Analyst Panmure Gordon – a division of Lazard – reiterated its sell advice on Marlborough Stirling last week with a 31p share target, it said the software firm was not generating cash and shares should trade at a discount to its peers. At the time of going to press, the company&#39s share price was 46.5p.

Panmure analyst Simon Strong says: “The strategic review by the Marlborough Stirling group definitely would encompass a consideration for disposal of some parts of the group. What this change does is fundamentally alter the group&#39s business plan.”

He says until now the Marlborough Stirling group has been about integrating life and pension policies and support systems and The Exchange is pivotal in the whole proposition. He believes that breaking up the group would alter the company&#39s direction radically.

He is sceptical about a bid for the portal from life offices and thinks the suggestion that any interested party would pay more than £65m is way off the mark.

He describes the firm as”a bit of a distressed seller” and believes Marlborough Stirling would be lucky to achieve more than £20m-£25m for the business as the market cap of the whole group is around £111m.

Independent technology experts believe that anyone looking at acquiring the portal could face a period where revenue diminishes due to fewer quotes being processed after depolarisation.

Depolarisation could see the number of quotes generated through all the portals decrease as advisers will be regularly accessing a smaller number of life offices.

Retail financial services consultancy Cydonia director Allan Greenshields says there have been rumours in the market for some time about the possible sale of The Exchange.

He says: “We have been asked by interested parties for our opinion on a number of occasions regarding the potential returns on such an acquisition or investment. Our conclusions have been consistent and they mainly revolve around the need for significant capital to be invested in the platform to bring it up to date with the demands of the new retail finance operating environment.”

But Financial Technology Research Centre director Ian McKenna says: “The Exchange is an essential part of the industry infrastructure. It is the most successful of the portals in terms of the widest customer base. They are doing some very positive things and so to that extent it should be an attractive business.”

Technology experts believe there could eventually be a situation where there are as many as six different industry platforms but that these would have to be designed to communicate with each other. One front runner could set the standard for the rest, which could be an incentive for advisers to stump up cash now.

A prospective sale to a company that has no established links with financial services providers could also prompt the life offices to work together to buy the portal.


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