Fidelity National Information Services, Inc. FIS has acquired prominent financial software and technology services provider, SunGard for approximately $9.1 billion. Fidelity has undertaken the repayment of its existing debt while SunGard’s senior notes are expected to be redeemed today (Dec 1, 2015).
It’s noteworthy that the addition of SunGard to its portfolio is not only in line with Fidelity’s long-term goals but being a profitable business it is also likely to be immediately accretive to its business. The new company is expected to generate pro forma revenues of $9.3 billion in a year with employee strength of 55K.
The acquisition of SunGard will expand Fidelity’s offerings by allowing it to cater to a much wider set of clients in banking and capital markets (by serving existing clients and also acquiring new clients). Specifically, SunGard will open avenues for Fidelity to deliver solutions for asset managers and private equity firms, which were earlier inaccessible to the company. Additionally, SunGard will allow the company to grow its international revenues by approximately 4% to 5% going ahead.
The combined company will be able to provide services in markets like retail and institutional banking, payments, risk management, asset solutions and insurance.
Fidelity has expanded its business primarily through accretive acquisitions. The company has a track record of pursuing acquisitions that strategically fit its overall business mix and are easy to integrate over the long term. The acquisition of Reliance Financial in 2014 has aided expansion of its wealth management product portfolio while that of Clear2Pay (also in 2014) has contributed to its offerings in global payments, allowing it to provide differentiated enterprise payments solutions.
The aforementioned acquisition will likely make the company a leading player in retail and wholesale financial technology. However, related costs will likely have some impact on its cash position in the near term. In May 2015, it had suspended its share repurchase program considering acquisition expenses.
While this acquisition looks promising for the company’s growth over the long run, we believe that for now integration related costs can weigh on its financials. This is a concern as the company is already going through a rough patch in its existing business owing to weakness in its Professional Services business and sluggish demand from its large and global financial institution clients. The last reported quarter was a soft one for this Zacks Rank #3 (Hold) company with both top and bottom lines falling short of expectations.
Nonetheless, barring the near-term headwinds, SunGard assets are a positive for the company and are likely to provide it an edge over peers like Fiserv FISV, Global Payments Inc. GPN and Alliance Data Systems Corp. ADS going ahead.
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