SunGard Deal Extends Back-Room Trend

Opinion: The prospect of providing back-room technology operations for midsized and large corporations is drawing major attention, as also seen in IBM's purchase of Ascential and Oracle's purchase of Retek.

The back room of technology is suddenly at the forefront of investor demand. The latest example: SunGard Data Systems. A consortium of private investors on Monday put up $11.3 billion for a company that started life as a diversification effort by Sun Oil in 1983.

SunGard is a major player in managing financial transactions of banks, stock brokerages and insurance companies. In the past several years, one of its fastest growing segments has been in providing data backup, retention and data protection services for those same companies.

/zimages/3/28571.gifClick here for more details on a private equity groups purchase of SunGard.

SunGard—the original name stood for Sun Guaranteed Access to Recovered Data—joins companies such as Ascential (acquired by IBM for $1.1 billion on March 14) and Retek (acquired by Oracle after a shoving match with SAP for $650 million on March 22) in a growing list of companies providing the back-room technology operations for midsized and large corporations. Consumers have no idea what SunGard or Ascential products and services actually do, but they would know for sure when those systems fail.

Why the big acquisition spree now? A couple of reasons. CIOs and corporate technologists are investing in technology once again. But instead of willy-nilly dot-com investing, they want to spend money on technology that integrates existing systems, protects data and assures that if one system conks out, there will be another system to take its place.

Integrated systems allow companies to offer new services to customers built around combining existing databases. The recovery software business is driven by the post-9/11 recognition that you had better not store all of your data in one place, as well as a series of government regulations that require you to prove you have adequate data safeguards in place.

So, why dont the vendors create the products themselves instead of embarking on acquisitions? The vendors have accumulated a lot of cash over the past years while waiting for corporate tech spending to recover. It is much faster to acquire than to build it yourself.

And, new this time around, integration software is designed from the ground up to deal with many different vendor systems, whereas vendors used to mainly build systems to work only with their own products.

SunGard started life with one very big customer: Sun Oils own computing center. However, without being part of a technology vendor, the company was able to build systems and acquire its way to becoming a $3.6 billion company in 2004. Not bad for a company located in Wayne, Pa.—not an area especially known for high tech.

The list of companies involved in developing those back-end operations is winnowing fast as the acquisition frenzy that started at the end of 2004 continues unabated.

Who is next? I dont know, but vendors such as SAS, Iron Mountain and Information Builders are among the list of those companies invisible to the consumer yet very visible to the corporate CIOs.

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