Vista Equity Partners made a stunning announcement regarding its UK-based financial software firm, Misys, on Monday as they boldly doubled down on the space and acquired DH Corporation (TSX:DH).
Vista took Misys private through a ~$2 billion leveraged buyout back in 2012 after merger talks between Misys and a Swiss rival, Temenos (SWX:TEMN), collapsed. Although Vista’s offer of 350 pence per share represented only a 6% premium, the Eurozone crisis was weakening banks’ willingness to invest in software, and Misys had to do something to mitigate the uncertainty its customers were beginning to feel. Vista believed there was a significant opportunity to advance Misys’s solutions and expand the company’s reach, but the journey has taken a little longer than they expected.
Vista initially merged Misys with Turaz, the former Thomson Reuters Kondor business that provided software for managing TCM transactions, and then in 2014, the PE firm hired bankers to explore a sale. Temasek Holdings (Singapore’s Sovereign Wealth Fund) was rumored to be the frontrunner, but ultimately conversations fizzled out and no transaction was consummated. Then in October 2016, Misys attempted to raise $630mm+ in a London listing that would have valued the company at more than $5 billion. Unfortunately, given challenging European IPO market conditions, the offering was postponed.
However, this week’s news is a bold statement and strategy by Vista. On Monday the Misys acquisition of DH was announced, valuing the target at $3.6 billion (CAD $4.8 billion), representing an 11% premium to the stock’s Friday close. Vista’s keen software insights are being put to work as this bold acquisition truly expands Misys’s breadth of capabilities, geographic footprint, and composition of client base in order to be the uncontested market leader in its space – ideally, the combined platform will ultimately be valued similar to Temenos (SWX:TEMN) in the public markets. DH brings with it an impressive, blue-chip client base of ~8,000 customers, including Canada’s five biggest lenders and more than half of the world’s 50 largest banks. In addition, the company’s software solutions are quite complementary to Misys’s and should solidify the combined businesses as the undisputed leader in corporate banking software solutions.
With rumors that Misys is exploring a NYSE listing, we believe this landmark deal positions them exceptionally well to drive value for their current shareholders. We also believe Misys’s organic initiatives focused on developing machining learning algorithms and P2P lending will help potential future investors gain confidence in the company’s ability to stay on the cutting edge of banking technology. One thing is for sure: Clearsight knows Vista will find a way to exit successfully sooner or later – the PE firm is on record as having never lost money on a control deal, something very few firms of their size can tout. Moreover, Vista has proven to be an insightful and bold software investor where their keen intellect and instincts drive significant value for their LPs. Just days before the DH acquisition was announced, SEC filings revealed Vista had raised nearly $10.5 billion in capital commitments for its sixth flagship fund (originally targeted $8 billion). With Vista’s new war chest on the horizon, Clearsight can’t wait to see what kind of transformational software deals are in Vista’s future.