In a move reminiscent of the blockbuster buyouts of the late 1980s, seven private investment firms said yesterday they would pay almost...
PHILADELPHIA — In a move reminiscent of the blockbuster buyouts of the late 1980s, seven private investment firms said yesterday they would pay almost $11 billion in cash to acquire SunGard Data Systems, the financial-software powerhouse known for trading services and creating backup data systems in the event of a disaster.
The deal would be the second-largest leveraged buyout (LBO) of a public company by a private investor, in dollar terms unadjusted for inflation. The record is Kohlberg Kravis Roberts & Co.’s $25.1 billion purchase of RJR Nabisco in 1989, according to Thomson Financial.
Under the terms of the agreement, SunGard stockholders would receive $36 in cash for each share of Wayne, Pa.-based SunGard common stock they hold — a 14 percent premium to the closing price of 31.55 Thursday, before the Good Friday holiday. Some $500 million in bonds will remain outstanding.
SunGard shares rose $2.81, or 8.9 percent, to close yesterday at $34.36 on the New York Stock Exchange — a new 52-week high.
SunGard’s new owners, led by technology-focused investment firm Silver Lake Partners, would include Bain Capital, The Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts, Providence Equity Partners and Texas Pacific Group.
The consortium declined to publicly discuss the financing of the purchase, but a person familiar with the deal said the group intends to use $3.5 billion of its own money and borrow the rest.
SunGard, which earned $454 million on sales of $3.56 billion in 2004, provides data-handling products used by stock brokers and mutual funds.
It claims its software manages 70 percent of the transactions made on the Nasdaq Stock Market, but its biggest business is creating backup data systems in case main systems are damaged or disabled by a natural disaster, blackout or terrorist attack.
Its rivals include Automatic Data Processing and DST Systems.
Tim Fidler, director of research at Ariel Capital Management, which owns about 5.5 percent of SunGard’s stock, praised the deal as making “a ton of sense.”
He said SunGard had been undervalued on the public market, partly because its two businesses were very different. The software side had growth potential, while the disaster-recovery business had a large, stable cash flow.
“One of the complications with SunGard is that it had two businesses. One appealed to one constituency, and one type of investor, and another appealed to another,” Fidler said.
SunGard said Silver Lake came forward after the company announced plans last year to spin off its disaster-recovery business, which had accounted for about 40 percent of its 2003 business. Those plans have now been abandoned, though analysts said it’s possible the company’s new owners could later pursue such a deal.
SunGard’s sale is the latest in a string of high-profile buyouts, including the $6.6 billion deal earlier this month to buy Toys R Us by a group including Kohlberg Kravis Roberts, Bain and Vornado Realty Trust.
In January, Amadeus Global Travel Distribution agreed to a $5.8 billion buyout by two British private investment groups.
Buyout firms have a lot of money at their disposal, and these investors are expecting slightly less in returns than they once did, said Steven Kaplan, a finance professor of University of Chicago Graduate School of Business.
Bank credit is also easier to come by than it has been, and it is becoming increasingly common for buyout firms to pool their resources.
“They have to partner up if they want to do a deal this big,” Kaplan said, adding the cooperation also reduces the likelihood of a bidding war.
SunGard’s board has approved the merger, which is expected to be completed in the third quarter, subject to stockholder and regulatory approval.
SunGard’s senior management and its business plan will remain largely unchanged, Chief Executive officer Cristobal Conde said yesterday. He said that becoming private will help the company “do things faster.”
SunGard has more than 20,000 clients in more than 50 countries.