The proposed merger between banking specialists Misys and Temenos (see here) could be scuppered now that US private equity firm Vista Equity Partners has come up with a rival offer for UK HQ’d Misys (strictly speaking a ‘nonbinding indicative proposal’), reported to be worth £1.2bn. This has the feel of something that could run for a good while yet but with both Misys and Temenos struggling on the banking software front, it is a distraction neither can afford.
Where Misys/Temenos would be an all share merger agreement (with Misys just about the dominant partner), Vista Equity Partners is talking about an all cash deal. ‘Bird in the hand’ appeal could come into play where investors are concerned because bringing together two strained entities does not guarantee security.
Last month Vista Equity Partners concluded its deal with Sage Group to take Sage’s ailing health care division off of its books (the business now operates under the Vitera Healthcare Solutions name), but we don’t see a link between Sage/Vitera and Misys.
However Vista Equity also completed the acquisition of the Thomson Reuters Trade and Risk Management Business this month (now trading as Turaz), which extended its existing financial services portfolio. The Misys bid makes sense in this context, particularly its treasury and capital markets products, although its banking products would take Vista Equity into a new and tough area. The PE firm also has Mitratech (legal process automation, insurance claims management for Fortune 1000 corporations and insurance companies), and Zywave (SaaS marketing applications for insurance and financial services) so has an identifiable focus on financial services. Interestingly it also has a healthcare nexus and a human capital management one, with several acquisitions in each area. SaaS is also a focus area and with the SaaS HCM space hotting up Vista Equity could be an investor to watch.
Last years’ discussions between Misys and Fidelity National Information Services came to nothing, with Misys asserting that Fidelity undervalued its business (see here). It was believed Fidelity was offering around $1.4bn. But the situation has changed since then. Poor market conditions are hitting Misys (and Temenos) sales. It ended the first six months of the year with revenue up just 1% on a pro forma, constant currency basis (i.e. excluding the effects of the Sophis acquisition) and cost cutting plans put in place (see here). That will influence the board’s discussions and shareholders feelings. Then there is the Mike Lawrie factor – he was credited with turning the company around but is about to leave for CSC (see here), which will add to the uncertainty.
Given the confluence of events, we feel that this time around it is not a case of whether a Misys proposition will reach a conclusion, but which one. Vista Equity looks like the strongest contender at the moment and the cash offer will be attractive to stakeholders. We’ll keep you up to date with progress.