Merger Opinion: SS&G Agrees to Acquire DST for $84/share.
SS&C has offered to purchase DST in an all-cash transaction for $84 per share plus assumption of debt, equating to an enterprise value of approximately $5.4 billion and the Directors have approved of the transaction. Why?
We know that SS&C is a global provider of investment and financial software-enabled services and software for the global financial services industry. We know that DST is a global provider of specialized technology, strategic advisory, and business operations outsourcing to the financial services and healthcare industries. Headquartered in Kansas City, Missouri.
DST generated pro forma revenue of $2.3 billion for the 12 months ended September 30, 2017 and SS&C expects $150 million of run-rate cost savings annually, post-acquisition. We know all of this from the press releases and the companies web sites.
We have a few other questions? Is this something the customers of SS&C or DST we asking for over the years? Were the clients of either company asking for a broader product line? Maybe a larger distribution network? Higher skilled people to serve the clients on specific projects? Did anyone ask them? Are they not the most important part of the business?
There is no mentioning of any increased value to the employees. Sometimes we hear that the employees are the most important part of a company. Did anyone ask them?
It makes an investor wonder if the customers and employees are the ones that are going to end up somehow paying the $150 million of projected run-rate cost savings?
This arrangement does not appear to serve any other purpose other than to increase the net worth of some shareholders. In the material that we were able to discover on the deal, there is no specific mentioning of better products, or new services to clients, other than standard M&A generic investment communication (MAGIC).
On just a stock value basis, DST shareholders are getting a 26.8% premium for a company that has a fair value of $66/share, ranks in the lower 1/3rd in terms of free cash flow/share and the middle 1/3rd in terms of revenue growth over the past 12 months. DST shareholders should be pleased with the transaction, but I wouldn’t stick around for the implementation.