Merrill Analyst: Tech Investors Should Eye Outsourcing Companies In Light of SunGard Deal - InformationWeek

InformationWeek is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them.Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

IoT
IoT
Business & Finance

Merrill Analyst: Tech Investors Should Eye Outsourcing Companies In Light of SunGard Deal

Report says premium paid for SunGard shows that IT outsourcing and business-process outsourcing companies are undervalued.

In a report issued Wednesday, Merrill Lynch says the planned $11.3 billion buyout of SunGard Data Systems Inc. by a group of private investors shows that Wall Street is undervaluing IT and business-process-outsourcing services vendors with steady, recurring revenue and strong cash flows.

Silver Lake Partners, the Blackstone Group, Bain Capital, and several other private equity firms have coalesced to purchase SunGard at a 14% premium over its market capitalization at the time the deal was revealed earlier this week. That lofty premium, Merrill Lynch analyst Gregory Smith says, should lead investors to take a second look at IT services and BPO service vendors whose balance sheets resemble SunGard's.

In the report, Smith says Affiliated Computer Services (ACS), Fiserv, and First Data look particularly enticing in light of the SunGard deal. Those stocks, Smith says, "are all trading at very attractive multiples, offer relatively high earnings stability and visibility, generate strong free-cash flow, and should offer good downside protection in any tough environment for technology investing."

Smith says he likes ACS for its strong presence in the fast-growing BPO market, a presence that was bolstered by the company's recent acquisition of Mellon Financial's human-resources-management outsourcing business. He's strong on Fiserv, which provides software and services to the financial industry, in part because he believes the company's outsourcing business will see modest but steady single-digit growth in 2005. And Smith expects First Data "to remain aggressive in buying back its stock at current levels given the company's very strong free-cash flow."

In morning trading Wednesday, the selling price for shares of ACS was $51.94, Fiserv was $38.90, and First Data was $39.56. Merrill Lynch says it does, and seeks to do, business with the companies covered in Smith's report.

We welcome your comments on this topic on our social media channels, or [contact us directly] with questions about the site.
Comment  | 
Print  | 
More Insights
State of the Cloud
State of the Cloud
Cloud has drastically changed how IT organizations consume and deploy services in the digital age. This research report will delve into public, private and hybrid cloud adoption trends, with a special focus on infrastructure as a service and its role in the enterprise. Find out the challenges organizations are experiencing, and the technologies and strategies they are using to manage and mitigate those challenges today.
Slideshows
Strategies You Need to Make Digital Transformation Work
Joao-Pierre S. Ruth, Senior Writer,  11/25/2019
Commentary
Enterprise Guide to Data Privacy
Cathleen Gagne, Managing Editor, InformationWeek,  11/22/2019
News
Watch Out: 7 Digital Disruptions for IT Leaders
Jessica Davis, Senior Editor, Enterprise Apps,  11/18/2019
Register for InformationWeek Newsletters
Video
Current Issue
Getting Started With Emerging Technologies
Looking to help your enterprise IT team ease the stress of putting new/emerging technologies such as AI, machine learning and IoT to work for their organizations? There are a few ways to get off on the right foot. In this report we share some expert advice on how to approach some of these seemingly daunting tech challenges.
White Papers
Slideshows
Twitter Feed
Sponsored Live Streaming Video
Everything You've Been Told About Mobility Is Wrong
Attend this video symposium with Sean Wisdom, Global Director of Mobility Solutions, and learn about how you can harness powerful new products to mobilize your business potential.
Sponsored Video
Flash Poll