Misys widens reach with Sophis swoop

MISYS, the technology firm, is buying Dublin-based Sophis for £375 million to boost its capital markets software business, adding more investor clients such as asset managers and hedge funds.

The purchase, from private equity firm Advent International, will see Misys use its global reach to sell Sophis systems into high-growth Asian and Middle Eastern markets, and should boost Misys's earnings per share (EPS) by at least a quarter.

It comes five months after people familiar with the matter revealed that Advent, which has made a string of financial-technology investments, was preparing to sell Sophis.

Misys is stronger in software relating to bonds, credit, foreign exchange, and interest-rate derivatives, and has a bigger "sellside" client base among investment banks and brokers, while Sophis focuses more on equity and equity derivatives and has more "buyside" investor clients.

Jefferies analyst Milan Radia said Sophis represented "a compelling acquisition" for Misys. "Together, they create a heavyweight market leader in the treasury and capital markets (TCM) software business," Radia wrote in a note to clients.

The deal values Sophis's equity at 235m, with net debt of 140m, Misys said in a statement. It may also make earn-out payments of a further 4m.

Sophis's portfolio and risk-management software helps with tasks such as calculating the "value-at-risk" (VAR) in a portfolio.

Its "value" system is used by more than 80 investment managers, and clients range from France's AXA to Elliott Advisors, the UK arm of Paul Singer's hedge fund Elliott Management.

Misys is funding the deal by arranging 280m of new loans that benefit from lower borrowing costs, selling part of its remaining stake in US healthcare specialist Allscripts and issuing a 100m convertible bond.

Advent, which took a majority stake in the family owned firm in 2007, also discussed a possible sale with rival buyout funds, two people familiar with the matter said.

However, the auction focused mostly on trade rivals in Europe and the United States who would be able to benefit from significant cost and revenue synergies, they added.

Sophis made earnings before interest and tax of €30m (25.4m) last year, on revenues of €74m.That means the deal values it at about 14.5 times EBIT, or 5.9 times sales.

Misys chief executive Mike Lawrie told analysts the deal would boost EPS by 25 to 30 per cent in the year to end-May 2012, the first financial year after it closes.

The company expects the deal, which requires shareholder approval, to close by end-February.

Misys also said yesterday it would return proceeds of 670m to shareholders from the sale of the other 90 per cent of its stake in Allscripts in August, through a tender offer priced between 270p and 310p per share.

That represents a discount of 8.6 per cent to Misys closing price of 295.5p on 11 November and the upper end represents a premium of 4.9 per cent.

Shares in Misys were down 5.4p at 290p.