FIS to Buy SunGard for $5.1 Billion

Fidelity National Information Services Inc. agreed to buy SunGard for $5.1 billion in cash and stock, a decade after a group of private-equity firms acquired the financial software company in one of the signature deals of the buyout boom that preceded the financial crisis.

The deal will end plans by SunGard’s owners to take it public. The Wayne, Pa., company had tapped underwriters for an initial public offering, The Wall Street Journal reported this year.

The private-equity firms are trading the uncertain outcome of an IPO for a modest profit that could grow over time depending on the performance of Fidelity National’s shares. Beyond the company’s struggles under the burden of billions of dollars in buyout debt and ever-changing technology landscape, SunGard’s seven backers over the years grappled with the challenges of sharing control of the company.

With the sale, the private-equity firms today have notched a return of a little more than 1.5 times the cash they invested, according to regulatory filings and people familiar with the matter.

KKR & Co., Blackstone Group LP, Bain Capital LLC, Silver Lake, TPG, Providence Equity Partners LLC and the buyout arm of Goldman Sachs Group Inc. paid about $11.4 billion for SunGard in 2005, pooling $3.5 billion of their investors’ cash and borrowing the rest, according to securities filings.

The deal helped kick off a string of megabuyouts in which firms teamed up to buy companies they couldn’t afford on their own. The private-equity consortia relied heavily on debt to fund their purchases, and some of the giant companies they bought faced financial difficulties in the recession that followed the buyout boom.

The SunGard buyout has become synonymous with the problems inherent in such arrangements. People familiar with the deal have described crowded and sometimes contentious board meetings. These days, such “club deals” are rare.

The company also took a hit during the financial crisis as banks, its largest customers, struggled. To avoid losing money, SunGard’s private-equity owners had to keep control of the company beyond their typical five-year holding period.http://http://im.ft-static.com/content/images/d641e106-34e8-4b29-939e-44c037eeb2c1.img

The firms in recent years made several moves to pave their way to a profitable exit. In 2012, SunGard sold debt to pay the firms a $720 million dividend. It later sold its higher education unit and used the cash to repay that new debt as well as some it took on in the 2005 buyout.

SunGard last year spun out its struggling business that helps companies recover data lost in disasters. The seven private-equity firms collectively own that company, called Sungard Availability Services.

Fidelity National, known as FIS, is paying the private-equity firms $2.3 billion in cash and $2.8 billion of its shares for SunGard. The FIS shares were valued in the deal at $62.33, their price before press reports late last month detailing talks between the companies, according to people familiar with the matter. The shares rose about 8% to around $70 midday Wednesday.

FIS said it plans to take on and refinance SunGard’s debt as part of the deal. SunGard said in a quarterly financial report that it had about $4.7 billion of long-term debt at the end of June.

FIS, which provides banking and payments technology services, said SunGard’s suite of financial services, public sector and education products will complement its offerings.

Based in Jacksonville, Fla., FIS helps banks process credit-card transactions, service auto loans, and handle back-office functions for money managers. Over the years it and rivals have benefited from the U.S. financial services’ trend toward outsourcing back-offices tasks.

FIS was itself the target of a potential buyout in 2010, when a group of private-equity firms led by Blackstone were in talks to buy the company. At the time, the deal would have been the largest leveraged buyout since the credit crisis.

Private-equity firms have been drawn over the years to payment-processing businesses because their recurring revenue offers a relatively stable cash flow that can be used to repay debt on a regular schedule.

After dipping in the financial crisis, FIS’s shares have been on a steady march upward. The company currently has a stock market value of about $18.3 billion.

With SunGard’s annual revenue of $2.8 billion and 13,000 employees, the combined company is expected to have more than $9.2 billion in revenue and more than 55,000 employees. The deal is expected to close in the fourth quarter.

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