BERKELEY, Calif. - BARRA Inc. agreed to buy Global Advanced Technology Corp., a large fixed-income research and technology firm with 200 clients.
BARRA will pay $3.2 million in cash and about 470,000 shares of stock in the $16.2 million deal.
With GAT's clients, BARRA has "well in excess of" 500 fixed-income clients worldwide, according to Andrew Rudd, chairman and chief executive officer of BARRA. More than 130 of its fixed-income clients are outside the United States. BARRA has 800 equity clients.
The acquisition "makes a lot of strategic sense," said Joseph Rosen, a managing director with Enterprise Technology Corp, a New York-based financial consulting firm.
Mr. Rosen said financial technology changes so quickly it requires "deep pockets" to feed the necessary research and development of analytics and to provide the necessary marketing.
Adding Thomas S.Y. Ho - the founder of GAT and a "distinguished" former financial professor - to BARRA's staff is a "natural complement" to BARRA, said Mr. Rosen.
Mr. Ho has been named an executive vice president at BARRA. He will assist in the integration of the two firms and continue his fixed-income research work.
Referring to BARRA's strength in equity and fixed-income analytics, Mr. Rosen said most firms would rather deal with one firm and establish a relationship.
But meshing the firms is "not a slam dunk" and BARRA will have to "make it work," he said.
BARRA's chief competitor in fixed-income software in the United States is Capital Management Sciences, Los Angeles.
In a statement on the deal, James Kaplan, president of CMS, said, "It is understandable that both BARRA and GAT felt the need to take some action in this area, as the market share of both firms has been shrinking over the last few years."
Mr. Kaplan added: "Any integration of (GAT and BARRA) products would certainly be a long-term project, which could require years of new development."
BARRA officials disputed Mr. Kaplan's statement. They estimated CMS and BARRA are close in total number of fixed-income clients and BARRA has the lead outside the United States.
BARRA gets GAT's Precision software for single security analysis, a product BARRA did not have. Security analysis software analyzes securities like collateralized mortgage obligations, asset-backed and mortgage-backed securities.
BARRA officials believe the deal makes the firm the dominant provider of fixed-income analytics on a global basis. With a full catalog now of fixed-income as well as equity products, BARRA officials see themselves as a one-stop shop for the global marketplace in analytical technology.
The acquisition also expands BARRA's presence in the fixed-income insurance company and banking markets, where BARRA had relatively little presence. About 35% of GAT's clients are insurance companies, and another 15% are banks.
Besides its headquarters office in Berkeley, BARRA has offices in New York, Montreal, London, Paris, Frankfurt, Yokohama, Hong Kong and Sydney.
Most of BARRA's clients are large investment managers, some large pension funds and global investment banks.
GAT's and BARRA's fixed-income businesses have a combined revenue of about $15 million a year. Before the GAT acquisition, BARRA's total annual revenue was $104 million.
GAT's Decision software analyzes portfolios of conventional fixed-income securities for risk exposure characteristics. Future product releases of both products will continue as planned, according to BARRA officials.
The GAT software is complementary to BARRA's Cosmos System line, according to BARRA officials.
Mr. Ho pioneered what is called the "key rate duration" approach for single security analysis. BARRA intends to adopt it for risk analysis and quantification of portfolios for its products.
Mark Wainger, a founder, vice president and head of software development at GAT, will become technical director of fixed-income products at BARRA.
