Bloomberg News

TPG’s GlobeOp Takeover Seen Topped as SS&C Weighs Bid: Real M&A

February 13, 2012

Feb. 13 (Bloomberg) -- Traders are betting TPG Capital’s agreement to take GlobeOp Financial Services SA private is anything but a done deal.

The London-based hedge fund administrator last week ended 21 pence above the 435 pence-a-share offer from TPG, the buyout firm run by David Bonderman, after SS&C Technologies Holdings Inc., a U.S. developer of software for financial firms backed by Carlyle Group LP, said it is weighing a competing bid. The gap shows arbitragers are anticipating GlobeOp will get the biggest price increase of any pending takeover in western Europe worth $500 million or more, according to data compiled by Bloomberg.

While the hedge fund industry had its second-worst year in 2011, JO Hambro Capital Management Ltd. says GlobeOp is poised to win a greater share of the market for maintaining financial records from rivals such as State Street Corp. and JPMorgan Chase & Co., boosting sales and profit that analysts project will reach all-time highs. With TPG’s offer valuing GlobeOp at 3.5 times sales, the industry’s lowest in five years, a bidding contest with SS&C may push the price to 500 pence a share, Oriel Securities Ltd. said. That’s 75 percent higher than GlobeOp’s average before news of a deal emerged last month.

“It’s entirely possible we could see SS&C coming in and then TPG having to come back and pay more,” Mark Costar, who oversees about $520 million at JO Hambro Capital in London and owns GlobeOp stock, said in a telephone interview. “The TPG bid is opportunistic and significantly undervalues the company.”

Relative Value

GlobeOp could be worth at least 12 times projected earnings before interest, taxes, depreciation and amortization in a takeover, based on comparable transactions, Costar said. That would value the company at more than 500 pence a share using analysts’ 2012 estimates, data compiled by Bloomberg show.

Joan Wasylik, a spokeswoman for GlobeOp, declined to comment on whether the terms of the agreement with TPG undervalued the company. Gavin Davis, a spokesman for Fort Worth, Texas-based TPG, declined to comment on whether the firm is considering raising its bid for GlobeOp.

Patrick Pedonti, chief financial officer for SS&C, declined to comment on whether the Windsor, Connecticut-based company would make a formal offer for GlobeOp.

“Carlyle is supportive of management,” said Rosanna Konarzewski, a spokeswoman for Washington-based private equity firm Carlyle, which owns about 37 percent of SS&C. She declined to say whether SS&C should buy GlobeOp.

Founded in 2000, GlobeOp calculates funds’ management and performance fees and determines monthly net asset values for hedge fund clients and other asset managers that oversee a total of $173 billion, according to the company’s website.

Shareholder Returns

On Feb. 1, TPG said it agreed to acquire GlobeOp for 508 million pounds ($800 million). The deal was announced less than a month after GlobeOp said it had started a review to determine whether shareholders would benefit from the sale of the company.

At 435 pence a share, the all-cash offer is 52 percent higher than GlobeOp’s average price of 285.44 pence in the 20 days before the company said Jan. 5 that it was in talks with TPG on a potential sale, data compiled by Bloomberg show.

GlobeOp jumped 21 percent to 430.5 pence a share on the day of TPG’s announcement. The stock then surged above the deal offer after SS&C said Feb. 5 that it has been conducting due diligence on GlobeOp since Jan. 14.

The company ended at 456 pence last week, the highest price since selling shares in its initial public offering in 2007, according to data compiled by Bloomberg.

The stock is also 4.8 percent above TPG’s offer price, indicating traders who profit from mergers and acquisitions are betting on a higher bid, the data show.

Top Rated

SS&C, which Carlyle took public in March 2010 after buying the company in a leveraged buyout in 2005, could profit from buying GlobeOp, which has technology that is helping increase sales in the market for fund-administration services as the hedge fund industry recovers, JO Hambro’s Costar said.

Investors may add about $80 billion of new capital to hedge funds globally this year, the most since 2007, Barclays Plc of London said last month. That may help bolster demand for services provided by GlobeOp, rated one of the best hedge fund administrators in a survey by Global Custodian last year.

Having more funds under administration will boost GlobeOp’s profitability because most of the company’s costs are fixed, letting it reap higher returns, according to Keith Baird, a London-based analyst at Oriel Securities.

GlobeOp’s profit margin will rise to 19.6 percent this year, according to analysts’ estimates compiled by Bloomberg, an almost fivefold jump from 2007. Sales at SS&C, which agreed to buy Irish accounting firm BDO’s fund administration unit in August, would also increase more than 50 percent with GlobeOp.

Hedge Fund Assets

“What happens is that as the hedge fund industry grows, their clients grow in size, they get new clients, the positive returns of those funds roll up and the whole thing expands,” Baird said in a telephone interview. SS&C “can get synergies out of it, so shareholders could benefit from that,” he said.

Still, SS&C has yet to make a formal bid, and investors that own more than 40 percent of GlobeOp’s shares plan to accept TPG’s offer, according to a Feb. 1 statement.

The Stoxx Europe 600 Index, the benchmark gauge for the region’s common equity, slumped as much as 22 percent last year and concern stocks may fall further could prompt more investors to settle for TPG’s proposal, according to Christopher Olson, who helps manages about $30 billion at Columbia Wanger Asset Management in Chicago.

“I would expect people to sell at this price,” he said in a telephone interview. “I don’t think in this market you necessarily look a gift horse in the mouth.”

Opening the Door

Olson said his firm is still considering whether to tender its GlobeOp shares to TPG.

Aviva Investors’ Toby Belsom, who also holds shares of GlobeOp, says that TPG’s bid undervalues the company’s growth prospects, leaving the door open for SS&C to sway shareholders with a higher price. Based on the agreement with TPG, the company is valued at a 57 percent discount to the median revenue multiple of 8.1 times for comparable deals valued at more than $500 million, data compiled by Bloomberg show.

“Certainly, we’re disappointed in the initial offer,” Belsom, who helps oversee about $945 million at Aviva in London, said in a telephone interview. “It’s likely that SS&C creates a competing bid situation that drives the price significantly higher than the current offer.”

--With assistance from Saijel Kishan in New York. Editors: Michael Tsang, Daniel Hauck.

To contact the reporter on this story: Charles Mead in New York at cmead11@bloomberg.net.

To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; Katherine Snyder at ksnyder@bloomberg.net.


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