SunGard Dealmakers Stand To Make Signifcant Return on Investment

Bain Capital, one of the private equity partners, is headquartered in Boston's John Hancock building.
Bain Capital, one of the private equity partners, is headquartered in Boston’s John Hancock building.

Ten years ago a consortium of private equity investment firms acquired SunGard for $11.4 billion and today they stand to make 1.65 times what they originally invested in the deal to sell the company to Fidelity National Information Services Inc.

In August 2005 Bain Capital, Blackstone Group, Goldman Sachs Capital Partners, KKR, Providence Equity Partners, Silver Lake, and TPG acquired Wayne based SunGard for over $11 billion, representing at the time, the  largest  technology  privatization and the second largest leveraged buyout ever completed. In the transaction, the private equity backers invested $3.5 billion in equity with the balance of almost $8 billion paid in cash.

Realizing the value of their investment, the seven backers held on to the investment for ten years, significantly longer than the usual four years. SunGard had decided to file to go public this year, but luckily the IPO was shelved as it would have valued the company at around $7 billion, nearly 25% less than the final sale.

While the sale price is lower than the initial investment, several side deals along the way have brought in significant revenue. SunGard paid a dividend of $720 million in 2012. That same year, the company also sold its higher-education unit to Hellman & Friedman for $1.8 billion, using the proceeds to clear some of the company’s debt.

Last year SunGard also spun off its availability services  into a new independent entity, a unit which is still held by the consortium after the sale, offering even further profit potential, in addition to the significant portion of FIS shares they gain from the deal.

While some might consider 1.65x return low for a ten year held investment, it is important to remember that the original sale of SunGard happened only a few years before the financial crises occurred. SunGuard was especially hard hit as its biggest clients are banks, which at the time were struggling simply to stay afloat.  

Considering that the company has never been profitable, a 1.65x return seems pretty good, especially when compared to similar deals. Examples include Energy Future Holdings which has filed for Chapter 11 bankruptcy protection and Freescale Semiconductors is expected to only show a tiny gain for its private equity owners. As a result, the faith in the SunGard investment is a real winner.

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