Fiserv has acquired fellow financial software company Open Solutions, adding new clients and bolstering its offerings for credit unions and banks. Fiserv is buying Open Solutions from Carlyle Group and Providence Equity Partners, paying $55m for the target’s equity and assuming $960m in debt. While Open Solutions’ enterprise value (EV) this time around is about 20% less than its price in its 2006 take-private, its equity value is a much smaller fraction of the previous transaction.
In the time since Carlyle Group and Providence Equity took Open Solutions private to Monday’s sale to Fiserv, the company’s debt has ballooned. Open Solutions had roughly $448m in net debt when it announced that it was being taken private. That amounted to about one-third (36%) of its total EV. The company’s debt has nearly doubled in the past six years and now accounts for nearly all (95%) of its EV.
Although Open Solutions’ debt does appear troubling, Fiserv is recognizing some financial benefits from the acquisition. Open Solutions has had a history of losses, which means that tax breaks are available to Fiserv. The net present value of those breaks is $165m, which will ultimately reduce the total cost of the acquisition from $1.01bn to $865m.
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