SunGard Data Systems

Private Equity
End term project
Amit Sharma Niraj Todi Geet Jain Sameer Goyal Vibhuti Sharma

SunGard Data Systems SunGard Data Systems. but its biggest business is creating backup data systems in case main systems are damaged or disabled by a natural disaster. . Kohlberg Kravis Roberts & Co. SunGard offered a final share price of $36 per share. SunGard claims its software manages 70 percent of the transactions made on the NASDAQ Stock Market. blackout or terrorist attack. and Texas Pacific Group. After few rounds of discussions and negotiations.88 per share (which was 20% premium over the current traded price of the company s share). Inc. But at the same time. A buyout investor group led by Silver Lake Partners will take SunGard in a leveraged buyout transaction. Silver Lake Partners agreed to pay at $36 for the acquisition.9 Billion. provides integrated software and processing solutions and information availability services in the United States. which makes the deal at $11. Earlier SunGard was planning to spin off the Company s availability services business. SunGard is the financial software powerhouse known for trading services and creating backup data systems in the event of a disaster. Goldman Sachs Capital Partners. SunGard operates through three segments: Investment Support Systems (ISS). and Higher Education and Public Sector Systems (HEPSS). The deal was managed by SunGard financial advisor Credit Suisse First Boston. Availability Services (AS). Providence Equity Partners Inc. Seven private equity firms were part of the Silver Lake Partners: Bain Capital LLC. Silver Lake partners offered the board for an acquisition deal at an initial price of $31.. The Blackstone Group LP.

P. combining investment banking and private equity investing. Bain Capital Fund. .000.500. Total Commitment $540.000. KKR Millennium Fund.3 billion of existing cash.000 $500.000 $540. including Ameritrade.P.000.1 billion of the equity Equity contribution of the 7 Private Equity Firms: Equity Investor Silver Lake Partners. L.000.000 $540. L.P.000. The Blackstone Group and Goldman Sachs were among the most prominent merchant banks.6 billion of equity. L.000 $540.000 $540. Datek and Instinet. L.P. Blackstone Partners.000 $3. it specialized in the less competitive area of technology buyouts and had a strong track record.5 billion while management contributed $0.000. L.P.P. L. While Silver Lake Partners was relatively young. $0. largest LBO of all time. GS Capital Partners.000 All seven firms had strong track records and reputations. Silver Lake also had a history of investing in financial services companies. and $3.000.9 billion transaction financed with $8 billion of debt ($5billion of senior secured debt and $3 billion of subordinated debt). Seven private equity firms contributed $3.000. KKR was one of the pioneers of the leveraged buyout transaction and had engineered the LBO of RJR Nabisco. Bain Capital and Texas Pacific Group had reputations for turning around underperforming companies.000 $300.Financing of the deal: The SunGard buyout was an $11. Providence Equity Partners V LP TPG Partners IV.

4 314.5 367 777.3 20046.69 384.6 282.8 0 529.7 994.5 -17.1 -17.1 -20.12 M No of outstanding share are 385 M Hence the value per share is $56.Valuation of the deal The deal can be valued using either DCF method or using the peer evaluation method.2 1076.3 -26 924. The Silver partners have offered price at a 36% discount.85 *Refer to annexure for the debt schedule The present value of the FCFE is $21.7 -21.4 295.57 0 529.16 2009 818.5 -26 296.1 872.3 2519.4 729.5 -14.7 1169.94 387.89 3048.3 4771.6 1461.3 Based on these projections .6 295.2 880.3 8311.4 387.1 282. This discounted price can be contributed to the risk associated with the business SunGard operates in.4 269.28 387.3 Free Cash Flow To Equity 1082.8 1268 1381.2 -20. DCF Method The projections of the SunGard are given below: PROJECTIONS Revenues EBITDA Depreciation + Amortization EBIT Increase in Net working capital Capital expenditures 2005 3936.4 -21.58 1340.27 2008 753.4 2006 616.44 Based on the DCF Method.84 2175.15 Net debt* 500 Interest Payment 28. the free cash flow to the equity is calculated 2005 544.44 376. company is valued at a higher value compared to the offer by Silver Partners.25 367 314.73 7500 529.46 0 529.5 2006 2007 2008 2009 4225 4515.5 -14.4 384.7 5040.3 1545.15 Cash balance 611. Apart from the riskiness also the operating margins and the lifecycle stage of the company .6 1144.14 EBIT (1-T) Depreciation CAPEX Increase in Net working capital Free cash flow to firm 611.6 387.3 1646.6 834.740.6 269.2 296.6 376.34 3972.43 2007 695.

DST Systems Inc.2 20.4 20.9 18. ISS & HEPSS Competitors Automatic Data Processing Inc.7%. one appealed to one constituency.2 22.6 15.4 Using this method it shows the price offered by Silver partners is offering a premium of $4.3 17. which is reflected in the lower value of price per share. Electronic Data Systems Corp International Business Machines Corp.9 21. Bisys Group Inc. which shows it is operating at an operating margin of 12. SunGard Mean 16.1 19.62 20 32.8 15.4 22 19.7 18. For example: in year 2004 SunGard had PAT of $454 million on revenues of $3.6 280 1. and one type of investor. SEI Investments Co.also raises further questions.2 26.5 15.11429 For our calculation we will use the P/E Multiple to be 20 PAT No of shares Outstanding EPS Industry Multiple Price Per Share 453. the following can be observed regarding the competition Current P/E AS Competitors Affiliated Computer Computer Sciences Corp.55555556 12 Month Forward P/E 14 42. Another reason for the undervaluation was it was operating in 2 businesses. and another appealed to another P/E Multiple Method Using the peer evaluation method. This price per share calculated using this method shows that industry is trading at a discounted P/E. .6 18. Fiserv Inc.56 billion.

3 0 2010 8000 529.8 6.3 7500 2007 8000 529.Annexure Debt Schedule Sources of funds Bank Debt (7yr & 6 mnth) High Yield Debt (12 yr) Debt assumed Cash New equity assumed Management rollover Debt Schedule Debt Interest Change in debt 2005 500 28.3 0 2013 8000 378.3 500 2006 8000 529.8 0 2014 3000 200 -5000 Amount Interest Rate 5000 2500 500 310 3500 109.3 0 2008 8000 529.3 0 2009 8000 529.3 0 2012 8000 529.3 0 2011 8000 529.02 8 Interest Value 301 200 .