Deals

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.

Vista Equity Partners LLC just scored a win that sets it up for an even bigger victory.

The private equity firm on Monday secured a deal to buy Canadian financial-services company DH Corp. for $3.4 billion including debt, triumphing over rival bidders.

Prime Candidate
An agreed deal at a price below DH Corp.'s 12-month average was made possible by weak Q3 earnings and outlook. The stock's tumble led management to weigh strategic options.
Source: Bloomberg
*Vista's offer of $25.50 a share is viewed as a good outcome for investors by analysts that cover DH. It's below the stock's 12-month average of roughly $28.29.

Vista's advantage is that it will be able to generate cost savings and potentially more revenue by merging DH with financial-services software provider Misys Ltd., a London-based company it has owned since 2012. If you're getting deja vu, it's because Vista has turned to this playbook before, including by merging Misys with Turaz, a maker of risk-management software.

The quicker Vista can close the deal and integrate DH, the better the chances it can then lock in a decent return through a sale or IPO of the combined company. Although the new entity's offerings will differ somewhat from global rivals such as Sage Group Plc, Temenos Group AG, Fidelity National Information Services Inc. and Fiserv Inc., their near-record valuations bode well.

FOMO
It's in Vista's best interests to accelerate the integration of Misys and DH, to facilitate an IPO or sale at a time when competitors are trading at lofty valuations
Source: Bloomberg

Misys in October scrapped a U.K. IPO citing market conditions that would have valued it at 3.15 billion to 3.75 billion pounds ($3.85 billion-$4.6 billion), or roughly 4.5 to 5.3 times its trailing 12-month revenue. Should the new combined company fetch a similar valuation, it would immediately validate the acquisition of DH, which was struck at a multiple of 2.75 times its trailing 12-month revenue. 

Bargain Hunter
Vista's acquisition of DH Corp. is the firm's least expensive leveraged buyout of a public company in recent years
Source: Bloomberg
*All Ebitda multiples reflect forward estimates with the exeception of Misys, which is based on trailing Ebitda because forward Ebitda estimates were unavailable

DH leans on U.S. clients for 48 percent of its revenue, making New York a potentially preferred destination for the combined company's listing. Already, the Financial Times reported that Misys had begun exploring New York as an IPO destination over London, where tepid demand amid Brexit fears have delayed or squashed potential deals. It helps that Snap Inc.'s successful debut seems to have reignited investor appetite for IPOs, with other technology-focused companies like Cloudera Inc. and MapR Technologies Inc. said to be on deck for debuts of their own. 

An outright sale is also a possibility. A combined Misys-DH could reasonably draw the attention of almost any of its global rivals, even if a steep valuation and enterprise value north of $7 billion deters interest from private equity. Other potential buyers include Singaporean state investment company Temasek Holdings (Private) Ltd., which was reportedly interested in Misys in early 2015.

It's a good bet, though, that the company ends up in the hands of public investors -- and don't be surprised to see the new Misys file for an IPO as soon as next year. Private equity firms like Vista have been around long enough to know that peak valuations have a finite life. 

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

  1. One exception would be Fidelity National Information Services, or FIS, which previously bid for Misys in 2011 and is still paying down debt associated with its $9.1 billion acquisition of SunGard Data Systems.

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