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Acquisition of software specialist is largest LBO in sixteen years.
Stephen Taub, CFO.com | US
March 28, 2005
In a deal that might rekindle interest in leveraged buyouts, management at financial data and software specialist SunGard Data Systems Inc. today agreed to sell the company for $11.3 billion to seven private equity firms. The acquiring consortium, led by Silver Lake Partners, also includes Bain Capital, The Blackstone Group, and Kohlberg Kravis Roberts & Co. L.P.
Interestingly, the deal is the largest LBO since KKR acquired RJR Nabisco in 1989. It is also the biggest buyout of a technology company, according to The Wall Street Journal.
The seven purchasers are shelling out $3.5 billion in cash to acquire SunGard. The Wayne, Pennsylvania-based company sells software and processing systems that help financial services companies, banks, and custodians, handle transactions. According to SunGard, over 70 percent of the trades on Nasdaq are conducted using the company’s products.
Under the terms of the agreement, SunGard stockholders will receive $36 in cash for each share of SunGard common stock they hold. SunGard's $500 million in bonds will remain outstanding. The transaction is expected to be completed in the third quarter of 2005.
Sungard management had planned to spin off the company’s availability services business, which specializes in keeping companies’ data systems running during emergencies. But given the sale, the company’s board scrapped that plan.
Reportedly, buyout firms have about $1 trillion to spend on deals. But in recent months, the firms’ share of deals has slipped to less than 10 percent of total dollars spent. That’s down from more than 20 percent last summer, according to The Journal, citing Dealogic.
The SunGard acquisition involves the largest group of private-equity firms that have ever teamed up for one purchase. “There will be more of these ‘club' transactions,'' Erik Hirsch, chief investment officer of Hamilton Lane Advisors, told Bloomberg. “No one has the firepower to take a deal down of this size by themselves.”
Analysts wonder whether the seven firms will look to sell off chunks of SunGard to recoup their investment in the company. Texas Pacific, one of the acquirers, has a reputation as something of a turnaround specialist. The firm has, over the years, invested in Ducati Motors, J.Crew, and Continental Airlines, among others.