Sungard Case Analysis

831 words - 3 pages

SunGard Write-upIs SunGard a good LBO candidate? Why? Why not?We believe SunGard is a strong LBO candidate for the following reasons:- Formed in 1983, SunGard is a well-established and industry leading company, which operates in the maturing information technology sector. There are relatively few risks to the company's business model and market position- SunGard has a low debt-to-equity ratio with only $519 mn of long-term debt and over $3 bn of total equity in 2004- The company is run by a strong and experienced management team. The CEO, Executive Vice President, and CFO all have approximately 15 to 20 year tenures with SunGard.- SunGard has consistently grown revenue and net income in the past 5 years, illustrating the company's ability to capture market share in the industry- SunGard has low working capital requirement, with no inventory, and minimal year-to-year changes in working capital- The company has strong cash flows from operations, which has more than doubled in the past 5 years and has enabled the company to repay large portions of its debt- There are low future investing and capital expenditure requirements, assuming the company stops making cash acquisitions- There appears to be feasible exit options such as an IPO, given the high demand from investors which is reflected in the company's rising stock price- There is the possibility of selling non-core assets to consolidate operations and raise cash, exemplified by the contemplated sale of the company's availability services businessQualitatively, is the deal a good investment for the buyout investors?Qualitatively, SunGard appears to be a good (but not great) investment for the private equity firms for the following reasons:- Ability to leverage company; investment financed with approximately 30% equity- Ample cash flows to cover interest payments, repay debt, and pay dividends to investors- Strong LBO candidate with high future growth prospects, per projections- Acquisition is well diversified among seven prominent private equity firms with experience in the technology sector- Existing management team has rolled over their equityHowever, one negative aspect of the deal is that the buyout investors are paying a significant premium of 44.3% to the unaffected stock price. Also, even after the deal announcement, the market only valued SunGard at $34.41 per share.Quantitatively, is the deal a good investment for the buyout investors? In answering whether the deal is good quantitatively, you will need to do an APV and an IRR analysis. For the IRR analysis, I want to know what IRR the buyout investors...

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