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SunGard acquisition indicative of IT services boom

Despite its enormous, headline-grabbing price tag, the SunGard deal isn't expected to affect the data center in the near future -- but it does set the tone for the future of the IT service business.

Monday's announcement that a private equity group led by Silver Lake Partners agreed to buy financial technology giant SunGard Data Systems raised eyebrows across the IT marketplace.

The transaction, which is worth an estimated $10.8 billion and isn't expected to close until the third quarter of 2005, will be the biggest leveraged buyout in more than 15 years.

As one of the leading providers of integrated software, processing solutions and information availability services in the financial market, SunGard's enterprise software is currently running back-end operations for some of the world's biggest companies. But the acquisition is likely to have little impact on enterprise data centers, despite its huge presence there.

Given the nature of the acquisition, that it was about money rather than another business…it shows that these investment guys think they can make money with Sungard.
Tony Lock
chief analystBloor Research

However, observers say the acquisition put the spotlight on the lucrative nature of the data center services business -- and the huge profits to be had.

According to Tony Lock, chief analyst at Bloor Research, the fact that SunGard was bought by a consortium with one goal in mind -- making money -- rather than a traditional company indicates where outsiders think the IT service space is headed.

"Given the nature of the acquisition -- it was effectively about money rather than another business -- shows that these investment guys think they can make money [with SunGard]," Lock said.

A SunGard source said employees were told Monday that a breakup of the company, which earned $454 million on revenues of $3.6 billion last year, is not likely at this time. Staffers were also informed that the previously announced spinoff of SunGard High Availability has been called off. Instead, it will be acquired as a single company.

According to Lock, the SunGard acquisition is one of the first steps that will eventually lead to an IT landscape dominated by service-based offerings, rather than the current practice where most companies handle their IT infrastructure internally.

"It comes down to economies of scale … the big IT companies are creating more flexible solutions that you can provision dynamically in response to changing business pressure," Lock said. "In 20 years there will be very few companies running IT infrastructure internally. They'll be buying services … and this is something SunGard has been offering for years."

Based in Wayne, Pa., SunGard serves more than 20,000 customers in more than 50 countries, including the world's 50 largest financial services companies, and supports almost three out of every four Nasdaq trades for its banking, mutual fund and stock exchange clients.

Let us know what you think about the story; e-mail: Luke Meredith, News Writer

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