Mergermarket Dealreporter

Convergence in the News
June 11, 2015
SunGard Suitor FIS Seen with Leg Up Over SS&C, Sources Say
FIS (NYSE:FIS) is better positioned than SS&C Technologies (NASDAQ:SSNC) to pursue SunGard ahead of the financial technology giant’s planned initial public offering, a source familiar with the matter and two sector advisers said.
Earlier this month, Wayne, Pennsylvania-based SunGard filed a preliminary S-1 with the SEC after ten years of ownership by a private equity consortium. SunGard may be valued at around USD 10.5bn on an enterprise value basis in a listing based on comps like FIS, this news service has previously reported.
The Wall Street Journal said last week that FIS and SS&C are among the suitors that have expressed interest in the company. At this stage, an IPO is the lead option for SunGard, a second source familiar with the matter said.
A spokesperson for SunGard declined to comment.
FIS, a major developer of software for banks and payment processors, has an interest in SunGard, the first source and one of the sector advisers said. A spokesperson for the Jacksonville, Florida-based company did not return a request for comment.
To support a bid, FIS could turn to Thomas H Lee Partners, which owned a stake in the mid-2000s and supported FIS’ USD 3bn merger with Metavante in 2009, the first sector adviser said. THL Managing Director Thomas Hagerty sits on FIS’s board. A spokesperson for the financial sponsor declined to comment.
FIS, with a USD 17.5bn market cap, USD 5.2bn in debt and USD 790m in cash, is large enough to mount a bid on its own, the third sector adviser said. He said an issue is that SunGard is not growing and FIS would have to see how it could add value through an acquisition.

SS&C, meanwhile, is roughly half the size of SunGard and would face a much more challenging time attempting an acquisition, the first source, sector advisers and an analyst said. The company has roughly half the enterprise value of SunGard.
Led by CEO Bill Stone, the Windsor, Connecticut-based company has aggressively pursued acquisitions to grow its business of providing services and technology to alternative asset managers. SS&C is currently working to close its all-cash USD 2bn purchase of Advent Software (NASDAQ:ADVS).
SS&C could look to its former owner, The Carlyle Group (NASDAQ:CG), to help fund a bid, the first and a fourth sector adviser said. Another option would be for SunGard’s private equity owners to pursue a reverse merger with SS&C, the third sector adviser said.
Carlyle and THL famously pulled out of the consortium pursuing SunGard in 2005 due to worries about the deal. Lead suitor Silver Lake Partners tapped Goldman Sachs Capital Partners and Providence Equity Partners to help write the equity check for the USD 11.5bn buyout.
Beyond financing, a tie-up between SunGard and SS&C would likely rouse antitrust concerns due in part to the company’s overlapping services and hedge fund administration software products, the sector analyst said.
The Department of Justice is already conducting an in-depth review of the Advent deal. The transaction could lead to increased fees and diminished client bases for hedge fund administrators that compete with SS&C for business and also use Advent’s popular Geneva product, this news service has reported.
Because SS&C’s hedge fund administration software competes with products offered by both SunGard and Advent, owning both SunGard and Advent would allow SS&C to dominate the market for hedge fund administration software, said John Phinney, co-president of Convergence, an advisory firm to the alternative asset industry.
SS&C would likely not be able to buy both SunGard and Advent, Phinney and the sector analyst said. SS&C’s planned acquisition of Advent is more of a vertical merger, whereas the acquisition of SunGard would be both vertical and horizontal, the analyst said.
SunGard services a broader array of businesses compared with Advent, Phinney said. For example, Advent deals with the alternative investment space, whereas SunGard deals with banks in addition to alternative investment funds.
From an antitrust standpoint, SS&C could have an easier time acquiring SunGard because the company’s business is not so concentrated in the alternative investment space, Phinney said.
If SS&C were to try to acquire SunGard, there would also be some overlap in services, the analyst said. SS&C could view that as a potential synergy, Phinney said. The opportunity for less expensive client acquisition could also attract SS&C to SunGard, Phinney said. Through a SunGard acquisition, SS&C could gain new clients by owning SunGard’s software, Phinney said.
To resolve antitrust concerns in this scenario, the companies could look to divest some of the overlapping accounting businesses where SunGard has a smaller presence than SS&C, the fourth adviser said.