Tim Bourgaize Murray: Fifty Percent, Give or Take

Tim Murray picks apart the recent SS&C-Advent tie-up and speculates that SS&C might have paid way over the odds.

Tim Bourgaize Murray argues that while due diligence precedes all acquisitions, it doesn't guarantee that the 'right price' will always be arrived at.

We often interpret major acquisitions as proof of, well, something. Typically, we read them as a clear affirmation for the buyer, or perhaps a marker designating the beginning of yet one more cycle of consolidation. But what if it is really neither, and rather proof that things are always a little more unclear than they superficially seem? Tim explores the manufacturing of meaning on the back of the SS&C-Advent deal.

It's no understatement to say that the jolt on February 2 was one of the biggest pieces of news I've seen in three years with Waters. While financial technology ingests and analyzes massive amounts of money and risk every millisecond, it's quite unusual to find a deal in the industry itself that requires debt issuance of $2.63 billion in loans and up to an additional $500 million in unsecured notes.

As evidenced by Waters' feature on SS&C's Advent acquisition this month, inquiring minds often jump to several considerations: whether and how the firms will integrate their technologies; potential clashes of operating culture; and in this case, what certain Advent Geneva users think of a direct competitor in the fund administration space owning the technology they run on. All interesting questions.

The one thing we don't ask much about is the money, itself. It's essentially assumed that the two firms in question know what they're doing—that they've done their diligence, convinced shareholders, and spent a good deal of money engaging investment banks and consultancies about how to structure the transaction. That makes even more sense when SS&C is involved, which—to put it mildly—has a made a habit recently of snatching up companies, both big and small, usually profiting immensely along the way.

Not By a Little
And yet, that's obviously not how the acquisition business always works. Just take, for an example, Comcast's still-pending acquisition of Time Warner Cable announced last year, another blockbuster deal that would give Philadelphia-based Comcast unrivaled—some say monopolistic—market share across a number of media distribution and communications channels.

When the $45.2 billion buy was publicized, it was thought that Comcast's venerable lobbying strength would take care of the regulatory approval process in Washington, so much so that the two companies began investing heavily in rationalization and efficiencies right away. More than 12 months later, though, it still hasn't crossed the finish line, and with time elapsing and a major FCC decision about net neutrality since then, it might never. Don't ever assume, in other words.

That brings me back to the Advent deal and one senior executive I spoke with at a rival technology giant, who told me he smiled just a little when he read our coverage.

Like Time Warner, it was an open secret in the industry that Advent was selling, he explained, and a number of major providers did some window-shopping before Advent finally wrangled a buyer. This background knowledge led him to conclude that SS&C overpaid ... and not by a little.

"By fifty percent," he said, quite plainly.

Of course, that number blew me away, and it bears repeating, particularly given that both companies in question are publicly traded: SS&C may have paid more than a billion dollars for Advent above what it needed to.

Not So Subtle
Now, even if you consider the source's bias and don't stick to that number exactly—valuation, you understand, is a fickle science—the order of magnitude involved is still astounding. He said it's quite possible SS&C will tackle the debt financing involved with the sizeable Ebitda generated by the combined firms, and then begin deciding what pieces it wants to keep and sell off from the Advent stable. "But at this point, we think they were stronger companies separately than they are together," he added, going back to the original point—cost.

We all wonder why there aren't more major acquisitions in our industry. Bringing two teams of rival developers together is tough, while product rebranding is annoying, and too much consolidation can create tricky conflicts of interest. The buy side especially values stability in its technology platforms' ownership, so that's yet another deterrent. But in the end, getting the dollars and cents wrong early on can be incredibly expensive, if not a death knell.

SS&C will surely know the stakes, and their actions moving forward will reflect those stakes. I, for one, don't expect them to be subtle.

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