* Availability services to be its own company
* Revenue, profit declining in that segment
* Pioneering consortium deal from 2005
By Steve Bills
NEW YORK, Jan 30 (Buyouts Magazine) - By spinning off a unit
that represents about a third of the company, owners of SunGard
Data Systems Inc are separating two businesses going different
directions and giving themselves options for exiting the
SunGard announced on Jan. 24 that it planned to spin off its
disaster recovery business, which will retain the name SunGard
Availability Services. Both SunGard and SunGard Availability
Services will continue to be owned principally by the consortium
of private equity investment funds that took the Wayne,
Pennsylvania-based financial technology provider private in
August 2005. The tax-free transaction could occur as early as
the end of the first quarter.
When SunGard went private in an $11.4 billion buyout, it was
the largest privatization of a technology company ever and the
second-largest leveraged buyout at the time. Silver Lake
organized the group of buyers, whose other members are Bain
Capital, The Blackstone Group, Goldman Sachs Capital Partners,
Kohlberg Kravis Roberts & Co LP, Providence Equity
Partners and TPG Capital.
Neither Silver Lake nor SunGard responded by deadline to
Buyouts's requests for comment on whether the spinoff might be
intended to pave the way for the sale or IPO of one or both of
The company now is planning to amend $4.24 billion in loans
to back the spinoff, sources told sister service Thomson Reuters
Loan Pricing Corp.
The company is amending its $850 million revolver due March
2018 and $3.387 billion in term loan B tranches maturing in
various years from 2014 to 2020. Among other provisions, the
amendment would allow SunGard Availability Services to incur up
to $1.5 billion of debt in connection with the split.
Ratings agencies shrugged off the move, saying the spinoff
would have no immediate impact on SunGard's credit ratings.
Moody's Investors Service said it expects that total adjusted
debt-to-EBITDA will be over 6.5x upon close for the remaining
SunGard company. Moody's has a B2 corporate family rating on
SunGard, which means its debt is considered speculative and
subject to high credit risk.
Moody's also offered insights on the diverging prospects of
the SunGard businesses. Its financial services operation, the
core of the surviving SunGard, has a "strong business profile"
with "low customer concentration, diverse product and service
line offerings, and broad geographic reach," Moody's said.
In addition, SunGard's products and services, including
processing systems for various kinds of financial companies,
should benefit from regulatory reforms. By contrast, Moody's
characterized the availability services business as "more
capital intensive and declining."
The company's latest quarterly report provides additional
detail on how financial services and availability services are
moving in opposite directions.
Financial services, the company's largest segment, generated
$635 million of revenue in the quarter ended Sept. 30, while
availability services accounted for about a third, $340 million,
of a total $1 billion revenue tally in the period. (SunGard's
relatively small public sector and education unit, which will
remain with the financial services company, accounted for the
remaining $53 million of revenue.)
More telling is the profitability trend of the segments.
Quarterly financial services revenue dropped 1 percent from the
same period last year, and availability dropped 2 percent, but
adjusted EBITDA rose 14 percent in financial services to $194
million, while it fell 11 percent for availability services, to
$ 108 million.
As a point of comparison, in 2005, the year it went private,
financial services provided $1.9 billion of SunGard's revenue,
availability $1.3 billion, and public sector and education $788
But the availability services business has changed
enormously. No longer do trucks carry spools of data tapes to
backup facilities for storage; instead, banks and other
companies back data up in real time, either mirroring
transactions to remote, but in-house, locations or backing up
their data to the cloud.
SunGard has introduced its own managed service for disaster
recovery, but it has not reversed the decline of availability
SunGard has been considering a spin-off of availability
services for at least two years. But after dropping a spinoff
plan in 2012, the company set a $720 million dividend recap, in
which it paid its first dividend since the buyout.