German co LPA buys Israeli fintech co Modelity

Fintech
Fintech

Sources close to the company said that price for the deal was between $20 million and $30 million.

German company Lucht Probst Associates (LPA), which develops technologies for the capital market and financial institutions, has acquired Israeli rival Modelity Technologies, the company announced. The price for the acquisition was not disclosed, but sources close to the company said that it was between $20 million and $30 million. The deal includes an additional small cash element contingent on success in meeting milestones. The acquisition is being financed by Motive Partners, a private investment fund specializing in fintech, which acquired control of LPA in late 2018.

Modelity was founded in 2000 by CEO Ayal Leibowitz, together with Ido Freidlin, and Avi Ben-Moshe, both of whom are no longer active in the company. Modelity has 80 employees, who are slated to join LPA's 200 employees worldwide, and will become LPA's development and innovation center in Israel. Leibowitz will continue managing activity in Israel. Modelity has raised $5 million to date from ClalTech, the Israeli investment arm of Access Industries; Poalim Capital Markets; and Reuven Ben Menachem, who invested as both a representative of ClalTech and as an independent investor.

Ben Menachem, who founded and managed Fundtech, sold in 2015 to D+H for $1.25 billion, has been chairman of Modelity for the past 18 months. Ben-Menachem led a $3 million investment in the company in 2017. Since his investment, Modelity's revenue has increase from $5 million in 2017 to $10 million in 2018.

Modelity is developing a software platform for financial institutions that facilitates automation of creation, operation, and sales of financial products. The platform contains a system for monitoring regulatory reports and full automation for creation and operation of personalized investment products for customers. The company's platform enables customers to view the terms and comply with regulation for various financial products. Modelity regards its platform as designed to protect the consumer.

The background for the growth in the company's revenue is a regulatory change that took effect in 2018 in the European Union (EU) requiring banks and financial institutions to disclose information about investment products for customers, such as the level of risk, costs, and their effect on return. The company operated with almost no external financing until the new regulation, when it approached external investors in order to accelerate its growth in accordance with the demand. "My connection with Modelity was created in 2017. We managed to consolidate a substantial presence in investment regulation, and the result for us was optimal," Ben Menachem told "Globes."

The acquisition of Modelity is part of the expansion strategy of LPA, one of Modelity's competitors in the European market. LPA is now developing a platform for autonomous consultation for customers, sales, and documentation for financial products. The models needed for providing transparency for customers are complex, and a product that will automate the calculation is therefore needed. The company currently provides the software it developed to over 40 banks and financial institutions in Europe, mostly in Scandinavia, France, and Italy.

Up until now, LP provided financial transparency services to the consumer in competition with Modelity, but specialized in creating coherent documents in various languages for consumers, while using external computational services. With the acquisition of Modelity, LP will be able to provide all of the services, from beginning to end.

LPA is located in Frankfurt in the German state of Hessen. Last month, Hessen Minister of Digital Strategy and Development Prof. Kristina Sinemus led a tour of politicians, academics, and businesspeople from Hessen in Israel for the purpose of meeting with technology companies. According to data collected especially for "Globes" by the IVC research firm and Start-Up National Central, both the volume and number of investments in startups in Israel involving German companies or funds has risen since 2016. Investors and businesspeople from Hessen are interested mainly in fintech technologies.

Published by Globes, Israel business news - en.globes.co.il - on August 13, 2019

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