‘No quick flip’ for SunGard consortium

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The seven private equity groups that last year took SunGard Data Systems private in an $11.4bn deal are likely to own the company for several more years, after deciding against a recapitalisation of the US technology group.

“There is no quick flip,” said Cristobal Conde, SunGard’s chief executive, in a wide-ranging interview published on Wednesday in the first edition of FT Corporate Finance, a monthly supplement focused on the relationship between investment banks and their clients.

Soon after the takeover was completed last August, speculation surfaced that SunGard might proceed with a refinancing of its debtload – which would have reduced the risk to the private equity buyers by allowing them to rake in a dividend payment close to the amount they put into the deal.

Such recapitalisations often mark the first step towards a rapid exit from an investment, and feed critics of the private equity industry who claim these funds are short-term players and financial engineers.

At SunGard, the debate over whether to move forward with a dividend recapitalisation plan was marked by some disagreement within the board, which is composed of Mr Conde and one representative of each of the funds.

But Mr Conde said that in the end the entire consortium - Bain Capital, Blackstone, Goldman Sachs, Kohlberg Kravis Roberts, Providence Equity Partners, Silver Lake Partners, and Texas Pacific Group – agreed not to approve it: “There is no difference of opinion.

In the interview, Mr Conde offered an upbeat assessment of the benefits of being private for a company like his own, which provides software products for some of the largest financial services groups. “I certainly don’t miss anything about being public”, he says.

Other chief executives of large US companies, which traditionally would have cringed at a takeover by private equity groups, are also becoming more attracted to the prospect of going private. On Monday, Richard Kinder, chief executive of US oil and gas pipeline group Kinder Morgan, teamed up with other members of the company’s management and four private equity funds to offer $13.5bn for the group and assume more than $8bn of debt.

If the proposal is accepted, it would rank as the largest leveraged buy-out since KKR’s acquisition of RJR Nabisco in 1989, and the largest private equity deal ever in which management risked some of its own money. Other recent examples include proposals by management and private equity groups to take over Aramark, the catering and work apparel company, for $5.8bn, and Kerzner International, the casino group, for $3.5bn.

Kinder Morgan shares on Tuesday closed 19 per cent higher at $100.31 – or slightly higher than the offer price of $100 per share. This signaled that investors expect a higher bid from Mr Kinder’s group, or the intervention of a rival offer pitched at a higher price.

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