UPDATED: SS&C to Buy Advent Software in $2.7 Billion Deal

The deal increases SS&C’s business and geographical diversification, including Advent's 4,300 customers of asset managers, hedge funds, fund administrators, prime brokers, family offices and wealth management advisory firms. In addition to scale, Advent also adds a stable and attractive revenue base, as demonstrated by its 90 percent recurring revenue rates over the last five years.

SS&C chairman and CEO Bill Stone tells Buy-Side Technology the deal began coming together last year after high-level conversations with Advent CFO Jim Cox at the annual Nasdaq OMX conference.

Things quickly moved along with Advent CEO Pete Hess when the two companies’ chief executives met in New York and agreed to a price in early 2015, engaging their advisors to complete the details of the deal (see below).

'Voracious'
Stone adds, though, that after a flurry of major buys in recent years—GlobeOp, Portia, and DST Solutions, among others—SS&C still isn’t done.

“It's the big one in February 2015,” he says. “We’re truly a bigger place now, and obviously this is a preeminent company we’re buying. We generate lots of cash, and Advent does too. We'll pay the debt down quickly and we'll be voracious, and more sophisticated, and the opportunity is better now than it was ever before.”

Some [competing admins] are big customers of theirs, and we recognize that. At the same time, a central nervous system like Geneva isn’t something most people want to tear out very often. And if any major administrator were interested in substantially changing Geneva, we probably were the most likely to do it, because we’re a technology company too. And we haven't. - Bill Stone, SS&C Technologies

The mix of product offerings sitting side-by-side made a lot of sense, the CEO says, particularly since SS&C, itself, has 2,400 personnel using Advent's mainstay Geneva product following the acquisition of fund administrator GlobeOp in 2012.

Though Geneva is the biggest prize in the acquisition, Stone was also impressed with the cloud-based work Advent has done with its investments in BlackDiamond, Advent Direct, APX, Syncova and Moxy.

“Likewise, we have a bunch of things their customer base can enjoy as well: our large FIX network, our post-trade confirmation and affirmation system is global, we have a number of applications that are very attractive for derivative valuation and trade and wire processing, and our GoCheck workflow management system, which is already integrated with Geneva,” Stone says. “On the fund administration side, our collection of CFAs, chartered accountants and other experts might be unmatched in the industry, and we can leverage technology to provide more service to their users with four of our datacenters and 14 processing centers around the world. Those are a couple things that Advent doesn't do, which we think their customers will embrace.”

Another impetus for the deal is an "acceleration," as Stone puts it, of diverse firms across the buy side moving more technology and accounting work out of house, demanding greater service level in the process.

“We’re four or five years removed from [Bernie] Madoff now, and that really pushed the fund admin business to the forefront," Stone argues. "Hedge funds realize they’re investing organizations; endowments realize they invest and make grants, and the same is true for insurance firms, RIAs, and other buy-side firms. They’re not experts at IT or accounting, and their best people want to be in the front office. For us, the front and back office are the same."

'Modest' Rationalization
While it’s very early days, Stone projects some “modest” technical and operational synergies and rationalization as part of the two companies integration, to the tune of approximately $45 million compared to the new pro forma entity’s $1.2 billion in revenue. “This wasn't done to rip out cost; it was done to grow a lot of revenue,” he says, adding that the integration work will probably last about a year.

As for Advent users who also happen to be SS&C GlobeOp competitors, the CEO points out that this isn’t the company’s first time at the rodeo.

“We focus intently on the customers involved each time, and whether GlobeOp or Portia or our others, they’ve found they get access to everyone in the organization, and that we’ve kept a tremendous amount of talent and capability from those companies here. That has been a huge priority. We’re excited about becoming larger, but we’re high-touch, and want to remain that way," he says.

“Some [competing admins] are big customers of theirs, and we recognize that. At the same time, a central nervous system like Geneva isn’t something most people want to tear out very often. And if any major administrator were interested in substantially changing Geneva, we probably were the most likely to do it, because we’re a technology company too. And we haven't yet."

Details of the Deal

• SS&C plans to fund the acquisition and refinancing of existing debt with $3.0 billion of debt financing and cash on hand and approximately $400 million of equity. For the 12 months ended December 31, 2014, adjusted earning before interest, taxes, depreciation, and amortization (Ebitda) for the combined pro forma entity is expected to be approximately $500 million with synergies. SS&C expects leverage to be approximately 5.3x net debt to last twelve months pro forma Ebitda at closing, and anticipates rapid deleveraging through the strong cash flow of the combined business.

• Each company's Board of Directors has unanimously approved the transaction, which is expected to close in the second quarter of 2015, subject to Advent stockholder approval, clearances by the relevant regulatory authorities and other customary closing conditions.

• Morgan Stanley and Deutsche Bank acted as financial advisors to SS&C and have provided fully-committed debt financing.

• Davis Polk & Wardwell acted as legal advisor to SS&C, while Qatalyst Partners acted as financial advisor and Wilson Sonsini Goodrich & Rosati acted as legal advisor to Advent.