Lava rocks for Citi

Every few months New York technology shop Lava Trading books itself into a downtown music dive for to let its 200 employees blow off steam and to provide a showcase for the in-house talent, led by guitar-playing co-founders Richard Korhammer, CEO, and Kamran Rafieyan, chief information officer.

Every few months New York technology shop Lava Trading books itself into a downtown music dive for two reasons: to let its 200 employees blow off steam and to provide a showcase for the in-house talent, led by guitar-playing co-founders Richard Korhammer, CEO, and Kamran Rafieyan, chief information officer. But when they gathered after work at the Parkside Lounge on July 23, the Lava crowd had another reason to party.

Three weeks earlier Citigroup had agreed to acquire trading-systems developer Lava. The price was undisclosed, but sources place it somewhere north of $300 million -- promising a hefty payday for shareholders like private equity firm TA Associates, which paid $28 million for about 25 percent of the company in 2002. The deal, expected to close this month, will augment Citi’s arsenal in the high-stakes, high-tech battle with the automated, “hands-off” trading platforms of other Wall Street firms (Institutional Investor, June 2004). Says Korhammer, 38, “We have an ideal, committed partner who recognizes the value of the franchise and who can help us in gaining additional distribution for our products, in growing overseas and in expanding into new security classes beyond equities and foreign exchange.”

But first, Korhammer has some explaining to do. Just a week before the July 2 acquisition announcement, J.P. Morgan Securities said it had agreed to use Lava’s ColorPalette trade order management system. Is J.P. Morgan still comfortable endorsing, and paying a rival for, a critical piece of trading software? “For now I’ll decline to comment,” says spokesman Brian Marchiony. But execs at other firms are blasting away, albeit anonymously. “That’s like SAP buying an Oracle system to run its financials,” mocks one. “Nobody in their right mind will go to senior management and suggest licensing an application from Citi.”

Korhammer, who played in a rock band with Rafieyan when they were classmates at Princeton in the 1980s, expects to tune down the feedback. “We will continue to operate as an independent company,” he vows. “That means working effectively with all clients -- and no special initiatives for anyone.”

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