Fidelity National Information Services Inc.’s $9.1 billion takeover of SunGard Data Systems Inc. seeks to jump-start business with the world’s largest money managers. Private-equity firms also may walk away with a sizable profit.
Buying the provider of financial software “breaks us into the largest asset managers in the world,” FIS Chief Executive Officer Gary Norcross said in an interview Wednesday as the deal drove his firm’s stock up the most in five years. SunGard brings a suite of products to help financial firms manage portfolios, trades, risks and cash. While FIS offers services and technology, “we were realizing in the whole capital markets side of financial institutions, we didn’t have those products,” he said.
The acquisition will create a company with more than $9.2 billion in annual revenue and operations in more than 100 countries. It’ll also help the seven private-equity firms that own SunGard -- including Silver Lake Management, Blackstone Group LP and KKR & Co. -- and other equity holders reap about a $2.2 billion profit on their $3.6 billion investment, a person familiar with the matter said. The gain includes a dividend SunGard paid in 2012.
FIS’s payment is 45 percent cash and 55 percent its stock. The buyer forecast $200 million in cost savings by 2017, and said it will temporarily suspend share repurchases.
FIS jumped 8.7 percent in New York trading to $70.75, a record closing price.
While SunGard also provides software and services to government agencies, utilities, schools and nonprofits, investors were focused on the increased access FIS will get to money managers, traders and corporate clients. Assets that don’t fit FIS’s focus on financial services might be divested, Norcross said.
“SunGard is essentially FIS’s corollary in the investment-banking space,” said Brett Horn, an analyst at Morningstar Inc. “Given FIS’s increasing focus on large banks, I think adding those type of capabilities makes sense.”
SunGard’s plan this year to go public prompted FIS to take another look at the company, about five years after deciding not to pursue a takeover, Norcross said in the interview at Bloomberg’s headquarters. Back then, “we didn’t feel like there was really any kind of strategic combination that would make sense,” he said. In the years since, FIS expanded its consulting business, and began to realize it needed to offer clients more.
Now, “we’re looking for companies that bring us new product that we can cross-sell,” he said. While looking at SunGard, the question was: “Will they bring products and services to serve those clients? The answer’s ‘yes.’ They bring us robust treasury capabilities, robust wealth capabilities.”
Private-equity firms acquired SunGard for about $11 billion in 2005, when leveraged buyouts by large groups of investors were more popular. At the time, it was the second-largest deal of its kind, according to data compiled by Bloomberg. The company’s long-term debt was $4.67 billion at the end of March, according to regulatory filings, while cash was $555 million.
FIS said it was impressed with SunGard’s management, and sees opportunities for some of the company’s leadership to stay on at the new company.
“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,” Norcross said on a conference call.
Fidelity National Financial Inc. spun off Fidelity National Information Services in 2006. Bloomberg LP, the owner of Bloomberg News, competes with FIS and SunGard in providing software to the financial industry.
Bank of America Corp. and Centerview Partners LLC were financial advisers to FIS, and Willkie Farr & Gallagher LLP provided legal advice. Goldman Sachs Group Inc., JPMorgan Chase & Co., Barclays Plc, Deutsche Bank AG and Credit Suisse Group AG were SunGard’s financial advisers. Simpson Thacher & Bartlett and Shearman & Sterling served as legal advisers to SunGard.
The deal is expected to be completed in the fourth quarter, according to the statement.