holding time private equity

One of Private Equity’s Longest-Held Investments Finally Sold

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August 13, 2015

 

There has been plenty of talk lately over the increased holding times in private equity. Some good news came about on Wednesday, as one the industry’s longest-held investment was finally sold when Fidelity National Information Services (FIS) bought SunGard.

 

The Financial Details of the Deal

 

FIS announced on Wednesday that it’d buy SunGard Data Systems from its private equity owners. The technology provider for financial institutions will pay $9.1 billion including debt for the firms.

 

The company announced it would finance the deal by providing 45% of the money in cash and the final 55% in stock. Gary Norcross, CEO of FIS, said in the official statement, “By bringing together two innovative companies with common business models, similar cultures, strong leadership and complementary solutions, we are enhancing our ability to empower our clients and deepen client relationships through an expanded full-service offering.”

 

SunGard is among the world’s top financial software companies. It’s annual revenue stood at $2.8 billion and the combined company will see its revenue climb up to $9.2 billion.

 

There have so far been no reports in terms of SunGard’s management, although Norcross said some of the leadership might remain intact. “We’ll certainly make sure that we have everybody that we want to keep and make sure we have them locked up appropriately before we close,” he was quoted telling Bloomberg.

 

Headache for the Private Equity Owners

 

SunGard was acquired by a consortium of private equity firms in the buyout boom of 2005. The firms, including Bain Capital and Blackstone Group, paid $11.3 billion at the time. The deal was among the largest leveraged buyout deals before the financial crisis.

 

Ever since, the private equity firms have struggled to drive up SunGard’s value enough to sell the company for a profitable return. The seven firms – Silver Lake Partners, TPG, Blackstone, Bain Capital, Providence, KKR and the private equity unit of Goldman Sachs – had been eager to sell and reports this April suggested the company is exploring either an IPO or an outright sale.

 

Earlier in June, the company filed for an IPO. But FIS’ decision to buy seems to have provided the private equity firms with another exit option.

 

The sale process has been a tricky one. Leaks in the press and minor disagreements by the seven firms have all made this investment anything but plain sailing.

 

A Profitable Deal?

 

Private equity firms don’t generally hold on to assets for more than five years and it’s easy to think the firms might have had to sell without making a real profit. But according to experts, the deal might not have been as bad for the firms as many would think.

 

According to calculations by Fortune, the sale will make around 1.66x cash-on-cash return. While this is only an estimate and could potentially be influenced by a number of other factors, the exit might not be as big of a disaster for the private equity firms as initially thought.

 

The deal was certainly welcomed by investors, as SunGard saw its share price surge after the announcement.

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