With its sights set on expanding the portfolio of products offered by its SunGard Insurance Systems (Miami) operation, as well as the opportunity to reach a broad European client base, the board of SunGard Data Systems Inc. (Wayne, Pa.) made an offer last week to acquire Sherwood International Plc (London) for £65.1 million ($103.5 million). The offer ended weeks of speculation within the insurance technology industry about the future of Sherwood, as well as SunGard's acquisition plans. SunGard's choice of Sherwood as an acquisition target, according to Al Beram, president of SunGard Insurance Systems, was based on the existence of cultural synergies and an absence of product overlap.
At a 140 pence per share ($2.22), the price was also right for SunGard, which in the past had evaluated small insurance-specific technology vendors whose owners "had a dramatic notion of the cost the company was worth," says Beram. However, notes Jaime Bisker, senior analyst, TowerGroup (Needham, Mass.), the quality and price of a company like Sherwood enables SunGard to take advantage of an economic opportunity that it probably has been seeking for some time.
SunGard "relies on acquisitions for their lifeblood and has performed about 100 of them," notes Mike Shinya, CEO, Sherwood International. However, SunGard has not acquired a major insurance technology provider since it bought FDP Corp. in 1999, according to Beram. The offer to acquire Sherwood was made in response to the trend of convergence among financial services institutions, he adds.
Having recognized that Sherwood's business was at a stage where it needed a jump in scale, the company's board determined that accepting SunGard's acquisition offer was the most appropriate course of action. "Merging into SunGard gives Sherwood a reach and range that we couldn't have hoped to gain on our own," says Shinya. The takeover transaction, which is expected to be completed on July 31, is dependent on Sherwood's shareholder acceptance. According to Shinya, the company already has received some indications that the shareholders think the price is right.
SunGard has not yet determined if new solutions will be developed once the Sherwood deal goes through. However, according to Beram, the company -- which has a presence in the group applications market -- looks forward to leveraging Sherwood's strengths in products marketed to the P&C sector and certain life areas.
As a result of the acquisition, SunGard Insurance Systems (which currently has clients in eight countries and four continents) hopes that Sherwood's sales and marketing force, coupled with its enhanced global breadth and portfolio of products, will help to attract customers. "If a vendor approaches a large company and it only has a portfolio of three products, it's a lot more difficult to make the sale," explains Beram. Currently SunGard's insurance applications include software tools for life marketing and sales, back-office applications for group benefits, record-keeping applications and applications for individual life policies.
Although neither details nor a timeline for the merger process had yet been determined, Shinya relates that there has been some discussion about the status of Sherwood's management team post-transition. "SunGard says they are not expecting dramatic changes," says Shinya. "The vendor's ability to interweave management after acquisitions is paramount to the success of its business model."
Additionally, Sherwood has reached out to its key clients to talk about the potential acquisition, Shinya says, reporting "the feedback is very positive. Our clients see it as a good move."