Misys could be first of many software house bids, broker says

19th Mar 2012 07:03

Financial software developer Misys has announced that it has reached agreement on the terms of a recommended 350p-per-share cash offer by Magic Bidco Limited, an investment vehicle indirectly owned by Vista Funds.This follows last week's news that the discussions with Temenos Group, long though of as a natural partner of Misys, had been terminated.Bidco's offer values Misys at £1,266.8m and represents a 32.1% premium to Misys's previous three-month average closing price (265p) at February 2nd, the day before it announced that it was in talks with Temenos. Shares closed that day at 326p, 7.5% lower than the offer price."The independent Misys directors believe that the offer from Vista of 350 pence per share is an attractive value for Misys shareholders and represents a valuation that captures the organic growth potential of the Misys business whilst providing certainty, in cash, to shareholders," said Chairman James Crosby.Misys also announced this morning that revenue in the year to the end of the third quarter (February 29th) had declined by 3% year-on-year from £294m to £286m, while order intake fell 5% from £169m to £161m. The performance was affected by the "cautious approach" adopted by customers and continuing challenging conditions in financial markets.Revenue and order intake in the third quarter alone were down 12% and 18%, respectively, as customers delayed ("but did not cancel") software licence purchase decisions during February as they awaited the outcome of the discussions on the future ownership of the company.Following today's Bidco offer, Misys has now decided to withdraw its medium-term revenue and operating profit margin targets. For the two years to May 31st 2013, the firm had targeted annual revenue growth for 5-8% and margins of 20-23%."Misys believes that it is not possible to report on the profit forecast as there is too much uncertainty in the current market environment over the next two years and hence the profit forecast is being withdrawn and should not be relied upon," the company said.Broker Merchant Securities said the clean 2012 enterprise value/net operating profit after tax multiple of around 20 is an amazing one, "given moribund organic performance over the last five years".The deal price is probably only justifiable on the basis of merger synergies with the Misys Kondor business, bought in the latter part of 2011, the broker reckons."In case any shareholders were thinking about not accepting, the Misys Q3 IMS [third quarter interim management statement] out today contains a very material profit warning. In part, this is down to deal-related delays in licence fee signatures, but it also suggests Misys would face a rocky future on astandalone basis as trading conditions worsen," according to Roger Philips, at Merchant Securities. As is the nature of markets, traders will now look round to see if any other big UK software firms are in play, although the Misys chase may not necessarily be over, as it is possible that the other interested party, CVC Capital Partners, working in conjunction with Misys's major shareholder, ValueAct Capital, has yet to show its hand. Merchant Securities believes that accountancy software giant Sage could be in the sights of private equity groups, or even US rival Intuit. "We doubt Intuit would be dissuaded by Sage's "decentralised" operations andcould see the group as helping internationalise footprint (as Intuit is c95% US-based)," Philips speculates."We are less enthusiastic over Logica and see little chance of an offshore player bid," Philips concluded.BC