Too many cooks, and before long the internal rate of return on the broth threatens to turn negative. SunGard, which sells software to banks, was purchased for $11.4bn in 2005 by a consortium including Silver Lake, TPG, Bain Capital, Blackstone, KKR and Providence Equity Partners. A decade later, it has filed to go public— and will struggle to match its former valuation.

The company is neither growing nor profitable. Losses were reported in four of the past five years. Revenue fell 3 per cent between 2010 and 2014, though the three most recent quarters managed to eke out a bit of growth. SunGard has been selling assets to pay down borrowings, but even after these disposals net debt stands at $4.1bn, which is five times adjusted earnings (before interest, tax, depreciation and amortisation). Interest costs and financing fees came to 10 per cent of sales last year. It has not helped that SunGard’s owners have paid themselves $756m of dividends and management fees of $26m in the past three years.

SunGard’s challenges go beyond its high leverage and rapacious owners. The financial crisis hit just a few years after the SunGard buyout, and SunGard’s main clients are large financial institutions. More recently, broader changes in the software industry have chipped away at revenues. More of its customers are shifting to software subscriptions instead of paying upfront licensing fees. Contract terms have also been getting shorter; clients want the flexibility to adopt new products more quickly.

Private equity firms have traditionally loved mature software companies because of their steady free cash flow. Indeed, they still do: just look at Vista Equity Partners’ purchase of Tibco for $4.3bn last year, or Thoma Bravo’s $2.4bn purchase of Compuware. But SunGard stands as a reminder that the sturdiest looking cash flows can suffer unexpected volatility, that leverage compounds this problem — and that groups are often no cleverer than individuals.

Email the Lex team at lex@ft.com

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