Application software firm Sungard is eyeing M&A opportunities in Asia as well as mulling its listing options as it strives to develop a stronger presence across the region.
The company essentially provides software solutions to corporates and financial institutions, from core banking and securities trading through to treasury and cash management.
It was formed in 1982 as a spin-off of the computer services division of US firm Sun Oil Co. It went public in 1986, since when it has made more than 160 acquisitions.
In August 2005 Sunguard was taken private again by a consortium of investors led by Silver Lake in a leveraged buy-out valued at US$11.4 billion. It is now a conglomeration of businesses that have come together under one umbrella to form the third-largest application software company in the world after Oracle and SAP.
In 2009 Sungard recorded revenues of US$5.51 billion. While it has more than 800 customers in Asia-Pacific, the region accounted for just 3% of that total.
So the firm has set its sights on growing its presence in the region. Asiamoney.com quizzes David Runacres, Sungard’s head of sales, international distribution, on the opportunities and challenges of doing business in Asia.
Asiamoney.com [AM.com]: Can you tell me about your company’s plans?
David Runacres [DR], head of sales, international distribution, Sungard: As an organisation globally we have grown fastest by acquisition. But in Asia we have grown equally fast by organic methods. Our Asia business is now a real focus. We believe we have further to go and this should be the fastest-growing part of the company given the economies we are in. We are talking about concentrating on emerging markets, and to us that means most of Asia. It does not mean the economies are emerging, it means our business is emerging in those markets.
AM.com: Do you provide cash management solutions to financial institutions?
DR: Yes. Generally we provide treasury – or the forex management of cash positions and risk analysis of cash positions – and we also provide a product which is a process of writing off different cash positions against customers and vendors.
In terms of cash management, the big banks tend to use in-house technology, and they often have a business trying to white-label that to other institutions. They try to differentiate what they offer by being self-generated in terms of applications. Today the organisations buying purely cash management, treasury or payments/receivables are generally tier two and downwards for banks, but for corporations it is the top of the tree.
AM.com: What is your presence in Asia?
DR: In Asia we have over 6,000 staff, including almost 1,000 in China. In terms of India, as with most companies it is largely technical, either consulting or pure code-cutting-type people. But in the rest of Asia it is largely people to either set up products or support our customers. We don’t develop product outside of India [in Asia], perhaps a bit in China.
AM.com: Why India?
DR: Some of it is because we bought organisations that had Indian development, for example our core banking product System Access was developed in India. Usually with India it is an issue of cost and the availability of resources. India is a well know software destination, as is China these days. We bought a [software] business called Kingstar in Shanghai [in 2006] which had local products. We went in at a lower level of the marketplace so we could layer our international products on top and build.
AM.com: What can you tell me about your growth profile?
DR: We are a US$6 billion company today in terms of revenues and we are growing around 20% [compound annual growth rate] a year. We have grown by fairly small acquisitions, since we tend to buy point solutions that match.
Our largest acquisition was one we did two years ago which was GL Trade. It was less than US$1 billion but gave us some excellent access to technology such as connectivity, this market information terminal, gave us trade completion products. It is like owning the cars on the highway if you own the networks.
AM.com: What is your focus for this year?
DR: Our theme is TEN for 10: Transparency, Efficiency and Networks in 2010.
Transparency refers to things like compliance; efficiency to make sure you are you doing things well in all aspects of your business; and networks in terms of connectivity, are you connecting appropriately to your customers, partners and the world in general. I think what we are seeing is the middle man going away, that people are connecting directly.
The same goes with the movement of cash around the world. Some large corporations are effectively setting themselves up as banks or even arbitraging banks against each other as part of the process of managing their money. A lot of companies are now trying to make sure that they are not blindsided like they were last year, particularly in terms of risk.
AM.com: What is the biggest challenge to your business?
DR: Size can be a positive and a negative. Size occasionally means that you struggle to react quickly. Elephants can’t dance. We try very hard to do both, to act small as well as act large. By acting small we tend to run ourselves as smaller units under one umbrella and the business units are reasonably autonomous. The challenge is to deal with things that cross business units.
One of the other challenges is that almost everywhere you go in Asia, on the surface everywhere looks like a great place to do business. People are always telling you that their country is better than any other in terms of opportunity. It is quite easy not to see the wood through the trees. The challenge is to make sure we don’t get distracted by all the wonderful things we see around us, and focus on where we can achieve the best results.
AM.com: You are a private company. Do you have any plans to list?
DR: Because we are a private organisation, the institutions that own us obviously look to that at some point. I can’t pretend we don’t talk about it. It’s on everyone’s mind who works here because it’s a potential game-changer. There is no plan written down that says we will do this on this date. There are multiple things you can do – sell yourself to another organisation, go public – there are many opportunities.
AM.com: Would you list in Asia or the United States?
DR: That’s pie in the sky to a large extent. I don’t think there is a history of successful large software IPOs in Asia. They are a US phenomenon first and foremost. That is where the money and the expertise in listing software organisations is. But things can change. It does not mean you won’t do something that involves Asia.
AM: Can you tell me about your acquisition plans?
DR: We made a recent acquisition which I would rather not make public. It was in risk in an Asia-Pacific country. It was typical of us, going and purchasing a niche organisation that has something we feel is accretive to the products we already have and is not a giant indigestion problem.
It is a few hundred people at most, typically. It was less than a US$100 million acquisition. The recent large [acquisition] was GL Trade in Asia, which overnight increased our business size and headcount 30%.
AM.com: Which are your target markets in Asia?
DR: Our most successful business in Asia-Pacific is Australia. It is probably the most sophisticated IT market in the region. And in financial services it is also very easy to understand because you have got the four big banks and not much else.
We have also done well in Singapore, and some parts of south-east Asia. Our business probably has not been as successful as it could be in Hong Kong. That is one of our targets, particularly in the capital markets area.
But a lot of focus is on China, which is an interesting challenge. It is about very high volumes but not necessarily very high margins. It is often that customers there have a good general idea of what they’re after, but not a detailed idea. They are trying to catch up, jump 15 years in a year. China is often a giant localisation challenge.
We also have a good opportunity in India. And I spend a lot of my time in Japan. There is a demand for what we do. It’s cracking that demand which is much harder than it is in most other countries for a myriad of reasons. Also Korea is an excellent challenge for us, particularly in areas like cash management. You have got organsiations that have only recently become world class at things like marketing and product development.
Plus in financial services, it is a very high speed regulation change market, as China is, which drives a lot of what we do. Regulatory change in securities markets – you can now trade exotic bonds, or short-selling is allowed – that is our best trend actually because it forces organisations to do things by a certain date.
AM.com: So you prefer to focus on developing rather than developed markets?
DR: The more complex the requirement, the more apt our products are. If you have a nascent securities organisation in Hanoi, it will probably trade in simple instruments, maybe some bonds, maybe currencies. Many organisations can provide the software to do that and even develop it themselves. The trick comes when the Vietnam market opens – you can now do derivatives, you can now do OTC [over-the-counter], you have now got a retail market – that is the point we often end up in markets like that.
AM.com: Isn’t it better to offer some simple products and get in that way?
DR: Which is one of the reasons we did what we did in China. We purchased a company that had simple, local products, and the idea is that now we can move as the market moves into more complex solutions.
AM.com: Any plans to gain that sort of purchase in other Asian markets?
DR: We are in the enviable position of being a pretty cash-rich company. Asia is a stated focus of ours, and we have proven in China that we can take a giant sea-change in how we do things by making a purchase in-country.
The trick is do you purchase a product or a method to market. They are not necessarily the same thing. We have a team of people who are responsible for just looking at acquisitions. Yes we will make acquisitions in Asia, exactly where, well the opportunities are many-fold. But certainly the bigger markets are absolutely the way to go.
AM.com: Can you tell me about industry trends that you see?
DR: I think there is an amazing change in the acceptance of package software as a solution. Even in conservative software countries such as China and Japan it has gone from ‘we will try and fail at doing it ourselves and then we will look at a package solution’ to ‘prove why you don’t need a package solution’ upfront. It is a massive change in the way people spend on solutions.
AM.com: What prompted the change, and over what time-period?
DR: The last two years have seen very fast change. I think the financial crisis speeded up implementation. Now the regulatory environment and market environment demand such complex solutions that I think people are starting to see they can’t do it themselves, that they need not just the software but the expertise of the people to put it in.
AM.com: If institutions are developing in-house expertise, is that not a challenge?
DR: I think a lot of organisations doing that made it more difficult for themselves during the crisis because they did not have the necessary expertise to spot what was happening quickly enough to react to it. The problem becomes bigger so fast that the speed you recognise the problem is more critical sometimes than the solution you are applying. How long do you leave it before doing something about it?
So the idea ‘we can do all this ourselves’ has been completely demolished as a thought process. Organisations that succeed in the future are going to be those that are able to go out and absorb best practice, and not say we will do it all ourselves. I don’t think this is necessarily a challenge for our business. In fact, last year helped to sharpen focus that maybe it was a wrong practice.