For a private equity firm to do business with another isn’t exactly unheard of, but the particulars of a fintech deal today between Chicago heavyweight GTCR and a local peer, Flexpoint Ford, are indeed a bit unusual.
GTCR said in a statement that it’s selling New York-based Dash Financial Technologies to that company’s co-founders, Peter Maragos and David Karat, who in turn partnered with Flexpoint to make the purchase. A Dash spokesman declined to say what size ownership stake Flexpoint is buying or how much it paid.
Oftentimes, private-equity firms are reluctant to buy from each other because they figure a private-equity predecessor has already squeezed the bulk of efficiencies and expansion out of a portfolio firm, leaving it with less to gain in the future.
But in this case Flexpoint’s management said it sees a longer runway for growth and returns. “With its scale, technology platform and fully transparent model, we believe Dash is uniquely positioned to extend the leadership position it has carved out in this space,” Flexpoint Managing Director Steven Begleiter said in the statement. He couldn’t be reached for further comment.
Flexpoint may also have had some insights thanks to historical ties to GTCR, where its CEO, Donald Edwards, got his start in the private-equity business before forming Flexpoint in 2005. Private-equity firms raise money from investors to buy companies in the hopes of expanding them and increasing their margins so they can sell them later for a profit.
Dash Financial provides trading technology and execution services to aid institutional investors and asset managers with their options and stock trading, and it may add trading in other asset classes in the future. Last year, it purchased a complementary Chicago firm called LiquidPoint, and despite some workforce contraction, it still has a significant presence in the city with about 60 of its 125 employees in that office. Overall, headcount at Dash is down from 140 employees last year.
Dash doesn’t have the field to itself. Another expanding rival is Chicago-based Matrix Holding Group, which was formed last year by the merger of ITG and Option Technology Solutions.
GTCR initially invested in the arena by way of its 2006 acquisition of New York-based broker and technology firm Convergex, which added LiquidPoint of Chicago. As GTCR’s ownership of that business has outlasted the usual four- to six-year holding period for private-equity firms, GTCR lifted LiquidPoint out of Convergex to combine it with Dash last year.
Investments in the brokerage and trading industry, including in Chicago, have struggled over the past decade, as volatility dried up and banks pulled back from trading in the wake of the recession and new regulation. With volatility picking up lately and stocks rising to record highs, there’s increased activity returning to the industry.
Dash Financial offers a suite of technology tools that help big investors, including banks, broker-dealers and hedge funds, trade in the markets, and it has staked its brand on transparency with respect to those assets for clients. Begleiter will serve as non-executive chairman of Dash after the transaction is closed, which the companies expect to be before June.