GFT: What’s next after the Sophos acquisition

Last Updated: 5. Februar 2024By

The IT service provider GFT Technologies remains on a growth course. The company is now much more diversified than a few years ago. Strategic acquisitions also play an important role in the expansion strategy: at the end of January, GFT acquired Sophos Solutions S.A.S., a Colombian specialist for core banking solutions. This significantly expands the company’s position in Latin America.

IT solutions for the banking industry GFT is an IT services company focused on the development and maintenance of custom core banking software solutions. Core banking solutions include asset/liability management, risk management, compliance software, internet and mobile banking, customer management, and solutions for multi-channel marketing. The company’s headquarters is located in Stuttgart.

High customer loyalty combined with high recurring revenues GFT is known as a reliable IT partner in the financial services sector due to its long track record. By focusing on core banking applications, GFT achieves high customer loyalty. Recurring revenues contribute to about 2/3 of total revenues. At the same time, the knowledge of the customer’s software interfaces serves as a high barrier to entry for potential competitors.

Reduced dependency on large customers – exploring new business areas In recent years, GFT has tried to reduce its dependency on its two largest customers (Deutsche Bank and Barclays) – with success. While the revenue share of the two main customers was still 57% in 2015, it was only 16% in the first nine months of 2023.

In the last year, 73% of revenues were generated with banks, another 16% came from the insurance sector, and the remaining 11% were from industrial or other customers.

Revenue climbs by 10% Overall, revenues increased by 10% in the first nine months to 594.61 million euros. Earnings before interest, taxes, and depreciation (EBITDA) also improved by 4% in the same period to 65.49 million euros. Accordingly, the EBITDA margin was 8.8%. In the end, net income increased by 3% to 34.84 million euros.

For the full year 2023, GFT has forecasted revenues between 800 and 810 million euros.

Sophos acquisition improves profit margin… Now, GFT has announced an acquisition in South America: the IT service provider is acquiring Sophos Solutions from Colombia for the equivalent of 87 million euros. The purchase is to be financed through an extension of existing credit lines and the company’s own funds. With the acquisition, GFT significantly strengthens its market position. Sophos is a specialist in modernizing core banking systems and cloud computing. In 2022, the company generated annual revenues of 60 million euros and a pre-tax profit of 9 million euros. This means that Sophos operates with a pre-tax margin of 15%, which is more profitable than GFT (Q1-Q3 2023: 8.8% adjusted EBIT margin).

…and rises to become the third-largest provider In addition, the market position is significantly improved. With Sophos, GFT becomes one of the top three providers of IT services for banks in Latin America and also increases its global delivery capability. With the transaction, the company expands its presence to 20 countries, six of which are in Latin America: in addition to Brazil, Mexico, and Costa Rica, GFT is now also present in Colombia, Chile, and Panama. The number of employees in the GFT Group increased by almost 20% due to the acquisition.

The Sophos acquisition temporarily gave the GFT share price a boost before profit-taking set in. The market value is currently around 840 million euros (closing price on February 2, 2024: 31.92 euros). According to the GFT website, current price targets from analysts range from 36 euros (Berenberg) to 57 euros (Quirin Bank).