Finance

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Finally. After nearly 11 years, private equity titans are about to bid farewell to SunGard, for real. 

In November, the owners of the banking and payments technology provider -- Bain Capital, Blackstone Group, Goldman Sachs, KKR, Providence Equity Partners, Silver Lake Partners and TPG -- completed a cash-and-stock sale of SunGard to Fidelity National Information Services, known as FIS. 

On Thursday, the firms received a green light from FIS to sell their remaining shares in the company, 12 business days before an agreed-upon lockup period was set to end. News of the lockup waiver caused FIS's shares to dip as much as 2.9 percent in early trading, but they've since pared some of those losses to trade at $72.50 apiece as of 2 p.m. 

Going Up
FIS shares reached a fresh high earlier this week, but shareholders who head for the exit now may miss out on further gains
Source: Bloomberg

The fact that the private equity firms are bolting for the exits shouldn't cause shareholders to panic. FIS reached a record $73.85 earlier this week, and analysts on average project it will climb to $81 in the next 12 months. Moreover, buyout firms have earned a hall pass for not wanting to wait around to lock in an expected return of up to two times their original investment.

A return of that magnitude isn't a terrible result for these firms, but they owned SunGard for much longer than what's considered a normal time frame for a private equity investment. That's in part because of its tepid performance during the financial crisis (the company's main clients are banks). The $11.4 billion deal was finalized back in August 2005 (a few days before Phil Mickelson won his second major at the PGA Championship), and still ranks among the largest leveraged buyouts ever. 

Other shareholders could consider their selling as a buying opportunity. FIS is relatively inexpensive, with a forward P/E of 16.5 making it cheaper than peers such as Fiserv, Global Payments and Vantiv. 

The company's profit margins are set to expand, helped in part by new products inherited through the SunGard deal. And with banks and other financial institutions expected to increase technology spending by more than 2 percent annually through 2019 according to Gartner Research, FIS is well-placed to snap up additional recurring revenue from its broad range of services. 

Profit Pop
FIS's profit margin is set to expand, thanks to its acquisition of SunGard
Source: Bloomberg

For investors willing to bet that FIS can deliver on its 2016 guidance of organic revenue growth of between 3 percent and 4 percent and a sizable jump in adjusted earnings per share to between $3.70 and $3.80 a share (which was reaffirmed during its first quarter earnings last week), it's worth sticking around. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net