Investment firms seek buyout of SunGard

One analyst said the prospect isn't good news for users

By Lucas Mearian

March 21, 2005 12:00 PM ET

Computerworld - SunGard Data Systems Inc. announced today that it is in discussions with a consortium of seven private investment companies seeking to purchase the financial services disaster recovery service provider for more than $10.5 billion.
The consortium includes Silver Lake Partners, Kohlberg Kravis Roberts & Co., The Carlyle Group, Bain & Co Inc., Texas Pacific Group, The Blackstone Group Inc. and Thomas H. Lee Partners LP, according to published reports.
Steve Duplessie, an analyst at Enterprise Strategy Group in Milford, Mass., said any deal involving multiple investment firms isn't likely to be good news for SunGard customers.
"Users should definitely be concerned from the perspective that a group of investment companies like this are not interested in building value for the long haul. These guys are interested in flipping that thing -- either ripping it apart for its pieces or putting lipstick on it and getting out as soon as they can," Duplessie said.
Duplessie said The Carlyle Group, which specializes in management-led buyouts in the aerospace and defense industries, likely sees the opportunity for government outsourcing deals through SunGard if the company is kept intact.
About 60% of SunGard's revenue comes from its software and processing business. The other 40% comes from its Availability Services, which offer managed hosting of storage, data security, records management and disaster recovery. The company has operations in 60 locations.
In October, SunGard decided to streamline its focus by spinning off its disaster recovery business from its software and processing business and taking the disaster recovery operations public (see story). Under that plan, SunGard Availability Services was to retain the SunGard name and about 2,000 of the company's 13,000 workforce.
According to a SunGard spokeswoman, the company has not yet completed that split, meaning both units are included in the potential buyout.
"We're concurrently proceeding with the spin-off because unless we have a deal it doesn't make much sense to deviate from our plans," said spokeswoman Madeline Hopkins
Hopkins declined further comment on the deal.

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