Subject:  SunGard to Be Acquired by Buyout Group for $11.3 Bln (Update2) |
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Date Posted: 02:11:22 03/28/05 Mon
SunGard to Be Acquired by Buyout Group for $11.3 Bln (Update2)
March 28 (Bloomberg) -- Silver Lake Partners and six other buyout firms agreed to acquire U.S. software maker SunGard Data Systems Inc. for $11.3 billion in the world's largest leveraged takeover since 1989.
The group will pay $36 a share in cash for Wayne, Pennsylvania-based SunGard, or 14 percent more than the current stock price, the companies said in a statement today. Silver Lake made the offer with Goldman Sachs Capital Partners, Blackstone Group LP, Bain Capital LLC, Kohlberg Kravis Roberts & Co., Providence Equity Partners Inc. and Texas Pacific Group.
``There will be more of these `club' deals,'' said Erik Hirsch, chief investment officer of Hamilton Lane Advisors in Bala Cynwyd, Pennsylvania, which invests in buyout funds. ``No one has the firepower to take a deal down of this size by themselves.''
The takeover is the biggest by buyout firms since Kohlberg Kravis paid $31 billion for RJR Nabisco Inc. 16 years ago. Managers of takeover funds, which spent a record $180 billion on purchases last year, are increasingly teaming up to avoid competing with each other for purchases.
SunGard, which serves about 20,000 customers in more than 50 countries, is being bought for less than four times annual revenue. The company's management team, led by Chief Executive Officer Cristobal Conde, will remain in place after the acquisition is completed in the third quarter.
Tech Spending
U.S. financial-services companies are spending about $100 billion a year on information technology such as software that tracks trading and provides disaster recovery, SunGard's specialties, said Peter Heckmann, an analyst at Stifel Nicolaus & Co. in Overland Park, Kansas. SunGard's programs run 70 percent of the Nasdaq Stock Market's trades.
``SunGard has two good cash-generating businesses, data recovery and storage, as well as a trade-processing business,'' said Stephen Velgot, an analyst at Cathay Financial LLC in New York, who has an ``outperform'' rating on the company's stock.
SunGard last week said it hired Credit Suisse First Boston and the law firm Shearman & Sterling LLP to advise on a possible sale. SunGard retained CSFB in October to help spin off its computer-disaster recovery business to shareholders, which accounted for 33 percent of last year's $3.56 billion of sales. SunGard today said it won't proceed with the planned transaction of the Availability Services unit.
Teaming Up
The company's 2004 net income rose 23 percent to $454 million, or $1.54 a share. SunGard ended the year with debt of about $500 million and cash of $600 million, said Robert Lee, an analyst at Keefe, Bruyette & Woods in New York.
Buyout firms, which spent a record $180 billion on takeovers last year, are teaming up to avoid competing with each other for purchases. The firms make acquisitions using a combination of cash from their investors and debt secured by the companies they take over. New York-based Blackstone raised the world's biggest buyout fund in 2002, a $6.45 billion investment pool.
``The new opportunities are about very big deals,'' said Roger McNamee, a co-founder of Silver Lake Partners who's now a partner at Elevation Partners, a buyout firm in Menlo Park, California.
Silver Lake, co-founded by Glenn Hutchins, focuses on buying technology companies. Its previous investments include Seagate Technology Inc., a maker of computer disk drives. Texas Pacific was part of an investor group that this month bought about 25 percent of information and data-services company Fidelity National Information Services Inc. of Jacksonville, Florida, for about $500 million.
Low Rates
SunGard has expanded through acquisitions, including the 2003 purchase of commodity-trading software company Caminus Inc. and the 2004 takeover of education software maker Systems & Computer Technology Corp. On March 21, when the company said it was considering a sale, its shares jumped 25 percent to $31.07, their biggest one-day gain ever. The stock closed on Thursday at $31.55 in New York Stock Exchange composite trading.
About $272 billion of takeovers were announced in the U.S. this year as of March 22, compared with $270 billion in the same period last year, according to data compiled by Bloomberg.
``There is a nice confluence of events -- commercial banks are willing to lend money and the high-yield market is strong, enabling deals by buyout firms to get done,'' said Frederick Joseph, co-founder of New York-based investment bank Morgan Joseph & Co. and former CEO of Drexel Burnham Lambert Inc., which helped finance the leveraged buyout boom of the 1980s.
Low interest rates are a cheap source of capital for buyout firms. The Federal Reserve's benchmark interest rate is 2.75 percent, compared with an average of about 6.7 percent since 1971. The average yield for the 10-year U.S. Treasury note, a benchmark for pricing corporate debt, was 4.22 percent last year, down from 5.05 percent in the previous five years.
The SunGard transaction will be paid for with equity from each of the buyout firms and debt financing from banks including JPMorgan Chase & Co. and Citigroup Inc.
To contact the reporter on this story:
Brett Cole in New York at at coleb@bloomberg.net
To contact the editor responsible for this story:
Larry Edelman in Boston at ledelman3@bloomberg.net
Last Updated: March 28, 2005 03:39 EST
http://quote.bloomberg.com/apps/news?pid=10000006&sid=aw5nXuSa043Q&refer=home
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