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At Confluence, M&A Becomes Preferred Path to Growth


Pittsburgh, PA — When it comes to building firms, there is frequently a critical juncture where a stubbornly adolescent company arrives at a bold and inescapable conclusion: It’s time to change lunch tables.

And so it is with Confluence, a 200-employee firm that for most of its entire 22 years dined with the buttoned-up minions of BPO (business process outsourcing) — a distinctly 20-century crew whose native dialect appears rooted more in the technology verbiage of H. Ross Perot than in that of Steve Jobs.

james-smithFor Confluence, the change has meant fully embracing the vision behind cloud computing (a cool kids table if ever there were one) and striving for new revenues outside its historic path of organic growth.

“The next big thing for us is an acquisition, and we are actively pursuing a few candidates right now. Hopefully, you’ll hear from us by the end of the year, and we’d like to do another one next year,” says James “Skip” Smith, chief operating officer of the firm, which boasts of having 40 percent of the leading investment management houses as clients.

“In the investment management industry, we’re a household brand, but otherwise this remains a niche market where a lot of firms don’t know about us,” explains Smith, who joined Confluence 2 years ago to oversee the development and design of the firm’s latest cloud offerings. Since Smith’s arrival, Pittsburgh-based Confluence opened a West Coast office in San Francisco — a timely if not somewhat overdue addition in light of Confluence’s having already established offices overseas in London and Luxembourg. As the company’s fourth office worldwide, San Francisco has offered Confluence access to the city’s robust hedge fund community as well as the region’s technology talent.

“I don’t know that we would have been able to bring our cloud offerings to market the way we did if we had been a public firm. I was given the flexibility here by our private equity partner to really manage my investment to make some big bets in new product development that are paying off,” explains Smith, whose work with Confluence’s private equity partner, Polaris Partners, has recently branched into the evaluation of potential acquisitions.

Smith says that acquisitions have become increasingly top-of-mind for Confluence’s management as the firm steadily achieves organic growth inside its U.S. and European markets, while it begins serving clients in Australia and Asia.

“We’ve got a strong balance sheet, and we now think that it’s important to have this company viewed as a platform company, where acquisitions are something we can do, and be successful at, and this will be a big part rounding out our story,” explains Smith, who says that he believes that the firm’s current regulatory offerings are helping Confluence to attract a more diversified group of clients.

“One of the things that we see happening is that some of these deep regulations are moving downmarket and are impacting alternative hedge funds and pension funds. We believe that there is an opportunity for us to grow by bringing some of our traditional offerings out of the mutual funds space into these alternative areas,” explains Smith, who believes that Confluence’s future growth, whether achieved organically or through M&A, will remain largely tied to the further acceptance of the cloud computing model.

Says Smith: “We view things happening in a fashion similar to the way they did with online banking, where people once claimed they would have no part of it. It took a few innovative solution providers to change their minds, and we view Confluence as providing a similarly innovative cloud solution to the investment management community.”

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