Not that bad — putting SunGard exit into context

Fidelity National Information Services Inc on August 12 agreed to buy SunGard for $9.1 billion in cash and stock, providing an exit for the company’s seven private equity owners. The sponsors will retain about a 15 percent stake in SunGard after it is sold.

The investment currently stands at 1.65x return for the sponsors, The Deal reported. That could move to as low as 1.5x or as high as 2x, a source close to the consortium said. Because some of Fidelity National’s payment is in stock, the return could change when the deal actually closes, a second source said.

At first glance, the 1.65x might not seem very impressive. Consider that SunGard, a financial technology company, was sold for $11.4 billion just a few years before the financial crisis. SunGard “took a hit” when its largest customer segment, banks, struggled during the 2008 downturn, the Wall Street Journal said.

SunGard has never been profitable. Revenue fell 3 percent between 2010 to 2014 though the company produced “a bit of growth” during its three most recent quarters, the Financial Times said in June. (SunGard’s revenue grew 6 percent during the first half of 2015, the first source said.) SunGard’s debt, which stood at roughly $4.7 billion at the end of June, also remains high.

The 1.65x “isn’t that bad considering the challenges SunGard has faced,” a source close to the consortium said.

It could’ve been much worse. Another club deal, Energy Future Holdings (formerly TXU Corp), filed for Chapter 11 bankruptcy protection with $40 billion in debt last year. In 2007, several PE firms banded together to buy TXU in a $45 billion deal. Another  club deal from 2006, Freescale Semiconductorsis expected to produce a tiny gain for its PE owners. (NXP Semiconductors earlier this year announced it was buying Freescale for $16.7 billion, including debt.)

The deal

With SunGard, the sponsors held their investment much longer than the usual four years as they tried to eke out a profit. The seven PE firms that acquired SunGard in August 2005 include Bain CapitalBlackstone Group, Goldman Sachs Capital PartnersKKR,Providence Equity PartnersSilver Lake and TPG. The sponsors invested $3.5 billion equity, The Deal said.

SunGard, in 2012, paid its only dividend. The $720 million went to all of SunGard’s investors. The company that year sold its higher-education unit for $1.8 billion to Hellman & Friedman. It used the cash to repay the new debt that came with the dividend and some of the old debt from the 2005 buyout, the WSJ said. Separately, SunGard spun off its disaster recovery operation, Availability Services, in 2014. The unit remains an asset of the consortium, The Deal said

SunGard this year filed to go public. Luckily, that didn’t come to fruition since an IPO would have valued SunGard at roughly $7 billion, The Deal said. The $9.1 billion sale to FIS came in 20 percent higher.

Executives for Bain, Blackstone, Goldman, KKR, Providence, Silver Lake and TPG declined comment.