Clearwater Analytics Holdings Inc. today announced plans to acquire Enfusion Inc., a fellow provider of financial software, for $1.5 billion in cash and stock.

The offer amounts to $11.5o per share. That’s a 32% premium to Enfusion’s closing price on Sept. 19, the day before word leaked about the acquisition. Clearwater Analytics plans to finance the deal with a combination of cash on hand, a $800 million loan and newly issued shares.

A financial institution’s organizational structure is split into three parts: the front, middle and back office. The front office includes client-facing employees such as brokers. The middle office supports the work of the front office in various ways, such as by ensuring trade orders processed by brokers don’t carry too much financial risk. The back office manages administrative tasks such as accounting and data entry.

Chicago-based Clearwater sells a cloud platform for middle and back office teams. The software can aggregate data about a financial institution’s investments in a centralized repository to ease processing. Clearwater checks each transaction log it ingests for data entry errors such as duplicate fields, accounting mistakes and other issues.

After the company’s platform prepares financial records for processing, users can turn them into reports. Those reports help compliance teams track how well their institution adheres to industry regulations. Investment professionals, in turn, can use the feature to monitor data points such as the amount of capital allocated to a given asset.

While Clearwater sells software for middle and back office teams, Enfusion focuses on the front office, the part of a financial institution that manages customer-facing activities. Brokers use Enfusion’s namesake cloud platform to process trade orders from clients. The software also provides the ability to create investment strategies, measure their performance and track trades. 

Enfusion is also active in some of the segments where Clearwater competes, namely the mid office market. It provides managed services that can offload some mid office tasks from a financial institution’s workers.

Clearwater plans to combine Enfusion’s front office platform with its middle and back office tools. Syncing data between such products was historically error-prone, which created information quality challenges. Clearwater and Enfusion hope that integrating their respective product portfolios will address this challenge for clients.

The deal is expected to create new revenue growth opportunities. Clearwater says that Enfusion is set to give it a presence in the hedge fund industry, which will grow its total addressable market by $1.9 billion. Additionally, the company sees an opportunity to boost its international sales: customers outside the U.S. account for 18% of Clearwater’s top line while Enfusion generates 38% of its revenue in Europe and Asia.

Clearwater expects the deal to unlock $20 million in annual savings within two and a half years of closing. Those cost cuts will help increase the company’s adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, margin by 8% within two years.

“Coupled with our operating rigor and use of generative AI, we have high confidence that we can drive meaningfully improved unit economics at Enfusion while also growing its emerging managed services business,” said Clearwater Chief Executive Officer Sandeep Sahai.

Clearwater expects to close the acquisition in the second quarter. 

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