Company Profile: Sungard
SunGard on acquisition binge
Andy Gotlieb Staff Writer
WAYNE -- Not many people outside Philadelphia have heard of SunGard Data Systems -- and there probably are still plenty of people around here equally
in the dark.
But the company is all around. Consider:
That Nasdaq trade you made? SunGard software conceivably processed it.
That trip you made to the bank? SunGard accounting systems likely handled it.
Your financial dealings with a Fortune 2000 company? SunGard cash management software possibly routed it.
Remember the last time the company computers melted down? SunGard may well have had something to do in fixing it.
"You don't see it, but SunGard is there every step of the way," said Rick Anderson of The Carson Group, SunGard's New York-based public relations firm.
In short, SunGard is big business, its 1999 sales reaching $1.44 billion, reflecting growth of 24.6 percent from 1998. Net income totaled $83.9 million.
There are now 7,000 employees.
It's even getting positive national press. In Businessweek Online, analyst Andrew Jeffrey of FleetBoston Robertson Stephens credited the company's ties to
the old line economy with a high tech twist for allowing it to largely survive an April market swoon that thumped tech and Internet stocks.
Jeffrey isn't alone in praising SunGard.
"SunGard is really a very nice company, well positioned in both of its fields," said Peter Heckmann, vice president of Hoak Breedlove Wesneski, a
brokerage that covers SunGard.
SunGard dates to 1983, when New York investment bankers led a $19 million leveraged buyout of the Sun Company's computer disaster recovery services
business, called Sun Information Systems. The investors changed its name to SunGard Data Systems. The company provided IBM mainframe user with
disaster recovery services.
While disaster recovery was, and remains, a profitable venture, its role in the company eventually was surpassed by SunGard's development of investment
support -- software and computer systems to automate complex processes. It bolstered its pull in the field with repeated acquisition of niche software
companies. In 1999 alone, it acquired 18 businesses.
The acquisitions kept on rolling in 2000, keeping the company's public relations department busy. Recently, for example:
On June 19, subsidiary SunGard Trading and Risk Systems announced the acquisition of RioFin Limited, a United Kingdom company which "specializes in
delivering value-added applications for equity, equity derivatives and convertibles."
The same day, SunGard announced it had acquired the assets of Frontier Analytics of California, maker of investment analysis and asset allocation
software.
On June 21, SunGard and industry giants Intel and Microsoft announced a joint collaboration on the first 64-bit eProcessing solution that will run on Intel
and Microsoft operating systems.
"They have the broadest product line in terms of serving all sectors of the business community," Heckmann said. "On balance, SunGard does a good job of
finding the right company, buying them at the right price and integrating them into their operations."
"They are in the forefront of the trends that are happening," agreed Norman Jaffe, an analyst for Fox-Pitt Kelton Inc.
Kind words aside, SunGard stock experienced a rocky ride in 1999, its price plummeting between July and October from its typical $35 range to about
$16. Net income dropped 29.4 percent. The company's total shareholder return fell 42 percent and dropped 137.7 percent compared to peer total
shareholder return.
Those peers includes the Nasdaq Tech 100 and S&P 500, Anderson said.
"It wasn't the best comparison they've chosen," he said, noting that high-flying tech stocks in 1999 made SunGard seem to suffer by comparison. "The stock
did take a hit last year, but it's interesting to note they're up 40 percent this year."
There's an easy explanation for what happened to SunGard, both Heckmann and Jaffe said: Y2K.
"It hurt them more than they originally felt," Jaffe said.
SunGard prospered in 1997, 1998 and early 1999 as companies spent money -- often with SunGard -- upgrading computers systems to be
Y2K-compliant. But by late 1999, most companies were ready for Y2K, but weren't ready to make other equipment upgrades; SunGard business suffered
in the meantime.
The company has started to bounce back, its stock now hovering around $31. First-quarter net income for 2000 climbed 16 percent from 1999 to $43.1
million. Revenues were $384.7 million, a jump of 20 percent from a year ago.
Heckmann predicted a gradual return to the 15 percent internal revenue growth per quarter SunGard once enjoyed.
"I think there's a lot of investors waiting on the sideline to see" if companies will resume computer upgrades, Heckmann said, adding that he considers
SunGard a strong buy with a target price of $52 per share.
Disaster recovery, now just 30 percent of SunGard's business, provides a steady revenue stream, since most clients are locked into three- and five-year
contracts. Operating margins remain in the 22-24 percent range, Heckmann said. Meantime, the company has no debt and more than $300 million in cash
on its balance sheets. That means the company could use the money to reinvest in itself, buy up competitors or, as Heckmann suspects, buy its stock back to
boost its value.
Jaffe also is high on SunGard's future. He favors the company's trend toward a single "brand name" for its many products and services. He also likes the
relations management approach the company now takes toward larger clients. A single manager will guide clients such as Wells Fargo through the company's
maze of services.
"It's better to coordinate a product mix," he said.
sungard.com |
