DST Systems Inc. (DST) is in expansion mode, having made four acquisitions in the past two months. The company has now signed a definitive agreement to take over privately held financial services company ALPS Holdings Inc. for $250.0 million.
Denver, Colorado-based ALPS Holdings focuses on servicing and gathering assets and is the parent company of ALPS Fund Services Inc., ALPS Distributors Inc. and ALPS Advisors Inc. The company is currently managing assets worth more than $3.275 billion.
DST Systems intends to operate the new unit as a separate company under its umbrella. The unit will be operating under the name of ALPS – A DST Company. Management seems upbeat about the acquisition as it will broaden its product portfolio. Moreover, the company will be able to leverage ALPS’ already established managing, servicing and distributing products in the field of asset management.
The transaction is expected to be wrapped up by the end of the fourth quarter of 2011. Post completion, ALPS integration is expected to fetch an annualized return of $5.0 billion within the first two years. DST Systems expects the transaction to break even in the fourth quarter and contribute about 6 cents a share to 2012 earnings. Excluding non-cash charges and costs tied to the combination, the deal would deliver an estimated 26 cents a share.
DST Systems is one of the leading global providers of sophisticated information processing software and products to the financial services industry, primarily mutual funds. The company has complemented internal growth with strategic acquisitions.
In June, the company acquired the assets of IntelliSource Healthcare Solutions and Canadian company Subserveo Inc. In May, DST Systems acquired Newkirk Products Inc., a communication solution provider to financial services and health care verticals, and the assets of Finix Business Strategies LLC, a financial services consulting firm.
We believe these back-to-back acquisitions will be accretive to DST Systems’ earnings as the complementary businesses will cut integration time and costs.
The company performed well in its first quarter, surpassing the Zacks Consensus Estimates on both the top and bottom lines. We believe that DST Systems’ leadership and scale in Financial Services will attract new customers based on the growing popularity of mutual funds.
On the other hand, tough competition from Advent Software Inc. (ADVS) and a high debt burden remain concerns.
Currently, DST Systems has a Zacks #3 Rank, implying a short-term Hold recommendation.
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