* Firms sell Open Solutions to Fiserv
* Tax loss from debt an asset in sale
* Buyer sees $75M in revenue, $50M in savings
By Steve Bills
NEW YORK, Jan 23 (Reuters-BUYOUTS) - Perhaps Providence
Equity Partners Inc and The Carlyle Group LP did well to
get out before things got worse for portfolio company Open
Solutions Inc. The buyout firms this month sold the
beleaguered bank-tech vendor to one of the industry's leaders,
Fiserv Inc., in a $1.015 billion deal.
Providence Equity and Carlyle Group took Open Solutions
private in January 2007 for $1.3 billion, or $38 a share. Fiserv
said in announcing its acquisition that it paid $55 million to
buy the company and assumed $960 million of debt, which is to be
retired. Fiserv also said it would "benefit from an acquired tax
asset with a net present value at the time of purchase of
approximately $165 million."
Fiserv said the tax assets are historical losses generated
by Open Solutions primarily as a result of the company's
significant debt burden. Fiserv said it plans to use those
losses in the future to reduce the taxes that it pays on profits
Fiserv expects to increase revenue over the next several
years by at least $75 million and to save more than $50 million
in annualized costs, largely by cross-selling its extensive
suite of bank technologies to Open Solutions clients and by
eliminating duplicated functions.
Fiserv is one of the largest vendors serving commercial
banks in the United States. With revenue of $4.3 billion in
2011, the Brookfield, Wisconsin-based company ranks No. 3 on the
"FinTech 100" ranking by the newspaper American Banker, a trade
publication. Fiserv is scheduled to report fourth quarter and
2012 results on Feb. 5.
Providence Equity and Carlyle Group began last spring to
float the idea of an exit from Open Solutions, The Wall Street
Journal reported last April, citing people familiar with the
matter. The investment had not lived up to expectations, and the
firms may not make money off the deal, the newspaper reported at
A Carlyle Group spokesman confirmed the sale but did not
respond to a question about its returns from the investment.
Providence Equity and Fiserv did not immediately reply to
requests for comment.
Standard & Poor's Financial Services LLC said it would
withdraw Open Solutions' credit ratings following the
announcement of the sale. S&P had been rating Open Solutions'
debt at 'CCC+,' which the agency uses to describe a company that
is currently vulnerable and dependent on favorable business,
financial and economic conditions to meet its financial
commitments. The agency had cut the company's rating from 'B' in
December, citing its operating weakness, high leverage and
"The rating action reflects the announcement by Fiserv that
it has acquired Open Solutions for $1.02 billion, which includes
assuming and repaying its $960 million of debt," said Standard &
Poor's credit analyst Jacob Schlanger. The outstanding bank debt
will be paid off immediately while the rated subordinated debt
will be paid off in 30 days following the expiration of the
required call period, according to S&P.