SunGard agrees to US$11.3 billion buyout

SunGard Data Services on Monday announced that its board of directors has approved a US$11.3 billion buyout offer from seven investment firms.

According to SunGard, the seven-firm consortium includes Silver Lake Partners, Kohlberg Kravis Roberts & Co., Bain Capital, The Blackstone Group, Goldman Sachs Capital Partners, Providence Equity Partners and Texas Pacific Group. Word of the coming sale first emerged a week ago.

Cristobal Conde, president and chief executive officer of SunGard, said in a statement that the deal represents an endorsement the company's business model and financial strength and that SunGard's executive management will remain intact for now.

Conde added that the plan is not to lay off any employees. The investment firms "have a long-term view towards growing the businesses in which they invest and an excellent track record of working in partnership with management to build great companies," he said.

However, many analysts and users alike believe that the company will be broken up and sold off as separate businesses. Those individual spin-offs could include SunGard's many software and processing businesses or its disaster recovery and business continuity services, which offer managed hosting of storage, data security, records management and disaster recovery. The company currently has operations in 60 locations.

"These private equity firms are not looking to make this huge investment in the company just so that it can carry on the way it is," said Octavio Marenzi, managing director of Celent Communications, a US-based financial services consultancy. "The only thing that applies is breaking this company up and selling it off."

Marenzi said SunGard is well positioned to be sold off as separate companies because it currently operates its many businesses as separate entities and its services and applications are not highly integrated. He also said the buyout doesn't represent a larger market trend of companies moving away from outsourced services. SunGard last year saw a 20 per cent increase in revenue; it currently has 64 software products.

The consortium plans to pay for SunGard with US$3.5 billion of its own money and will finance the rest.

"That's a pretty big leveraged buyout. It's going to be interesting to see what they actually do with this thing and how quickly they'll do it," Marenzi said.

SunGard said that it would drop earlier plans to split off its disaster recovery business from its software and processing business, a move it announced last year but had yet to complete. The company also said that its headquarters will remain in Wayne, Pennsylvania.

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