IssueAlert Emerging Technologies ~
January, 2003
SunGard
Data System's Acquisitions Continue with Caminus Purchase
By Christopher Perdu, Director, Market Research, UtiliPoint
[News Item from Associated Press Newswires] SunGard Data
Systems Inc. has agreed to Acquire Caminus Corp., a software provider
for the energy industry, for $159 million.
Analysis
SunGard Data System's (NYSE: SDS) purchase of Caminus (Nasdaq:
CAMZ) is the latest in a long line of acquisitions by the company.
Headquartered in Wayne, Pa., SunGard sells information technology
primarily to the financial services sector.
SunGard's offer of $159 million reflects a 260 percent premium
to Caminus' closing stock price the day before the announcement.
The day of the announcement SunGard's share price dropped 4.1
percent to close at $20.75, while Caminus' stock rose more than
252 percent, to $8.81.
Caminus chief financial officer Joe Dwyer said his company "was
not being shopped," and that SunGard approached it about
the deal, which includes a $4 million breakup fee. The agreement
is expected to close early this year.
The Caminus Fit
Caminus is a New York-based developer of energy trading and
risk management software. Once the acquisition is completed, Caminus
will become an operating unit within SunGard Trading and Risk
Systems, and will be led by John Andrus, Caminus' current chief
operating officer.
Founded in May of 1998, Caminus was created through the acquisition
of Zai*Net Software, Caminus Energy Ltd., Positron Energy Consulting,
and DC Systems, Inc., all providers of software and services to
the energy industry. The company is best known for its ZaiNet
software suite. ZaiNet enables energy market participants to manage
risk scenarios, and trade and manage energy transactions. ZaiNet
addresses all physical energy commodities and related financial
instruments.
Caminus, had itself been on an acquisition spree over the last
couple of years in an attempt to expand its product line. The
company acquired rival Nucleus Corp. of Houston in August 2000
for $19.6 million. The acquisition extended the company's product
line and added major energy players to its customer base. In November
2001 Caminus also purchased the software operations of Altra Energy
Technologies Inc., a privately held Houston provider of systems
for the gas and gas pipeline sector, for $60 million in cash and
stock.
Since then, however, many of Caminus' customers have reduced
technology spending amid the Enron Corp. debacle, and subsequent
collapse in the energy trading sector. While Caminus managed to
grow revenues, which were up 29 percent to $63.8 million through
the third quarter of 2002, its net loss for the same period rose
95 percent to $12.7 million. The company, which has no debt, also
is low on cash and equivalents that currently stand at approximately
$19 million.
Caminus recently finished a substantial cost-reduction program.
The company reduced its workforce by 17 percent, to approximately
440 employees. The measures are expected to Reduce expenses by
approximately $10 million on an annual basis.
Prior to the agreement with SunGard, Caminus had been actively
repurchasing shares, taking advantage of its depressed share price,
which traded below cash per share for a time. It spent $8 million
to buy back 2.6 million shares during the first nine months of
2002.
SunGard's Acquisition Spree
SunGard receives the vast majority of its revenue and income
from developing, marketing, and supporting application software
for proprietary investment support systems. Nearly 75 percent
of all Nasdaq trades are handled with SunGard's software and services.
The purchase of Caminus appears to be aimed at helping SunGard
broaden its product offerings to companies in the energy sector.
The company's SunGard Trading and Risk Systems group has developed
two products that are geared for the energy industry: Epsilon
and Panorama. Epsilon is a suite of software products used by
traders, risk managers, financial officers, and back-office personnel
to manage their energy transactions while controlling financial
exposure. Panorama integrates with the Epsilon product to allow
for both physical and financial energy products to be captured
alongside capital market transactions, and aggregated in a consistent
manner for computing cross-asset risk measures.
SunGard has been one of the most acquisitive technology companies
around, having completed roughly 100 deals since 1986. SunGard's
acquisition spree has helped to bolster the company's revenues
upwards of 30 percent, year over year, which has helped SunGard
weather the severe decline in corporate technology spending.
SunGard appears to do a great job at integrating the company's
acquisitions. The company's operating margins, currently at approximately
32 percent, have remained relatively steady, year over year.
Despite the numerous acquisitions, the company's balance sheet
remains strong. The company has over $300 million in cash, and
during the first nine months of 2002, the company retired approximately
$230 million of its long-term debt. The company plans to Continue
to Reduce its debt levels, which should help lower interest expense.
This will also enable the company to make additional acquisitions,
without becoming over leveraged.
Among other acquisitions, the company purchased Brut LLC, an
electronic communications network provider, in July for $100 million;
United Kingdom counterpart Guardian IT in April for $243 million;
Comdisco Inc.'s disaster recovery unit in October 2001 for $825
million; the news operations of bankrupt New York financial information
provider Bridge Information Systems Inc. in July 2001 for $16.2
million; Internet financial services applications provider Credo
Software Technology Ltd. in August 2000 for an undisclosed sum;
and USVirtual Inc., a Boca Raton, Florida-based maker of futures
trading software, in March 2001, also for an undisclosed price.
Given the current state of technology spending, and the economy
in general, SunGard has posted impressive results. The company's
acquisition of Caminus will certainly establish it as the leading
energy trading and risk management software provider. And as the
economy improves, it would appear that SunGard's business could
only pick up more significantly.
