Questions from text book Mergers, Acquistions and Other Restructuring Activities
ID: 441981 • Letter: Q
Question
Questions from text book
Mergers, Acquistions and Other Restructuring Activities, 7th Edition
ISBN-13: 9780123854872
Author(s): DePamphilis, Donald
Chapter 13 Discussion Question 5
13.5: Seven private investment firms acquired 100% of the outstanding stock of SunGard Data Systems Inc. (SunGard) in the late 2005.
SunGard is a financial software firm known for providing application and transaction software services and creating backup data
systems in the event of disaster. The company's software manages 70% of the transactions made on the NASDAQ stock exchange, but its
biggest business is creating backup data systems in case a client's main systems are disabled by a natural disaster, blackout, or
terrorist attack. Its large client base for disaster recovery and backup systems provides a substantial and predictable cash flow.
Furthermore, the firm had substantial amonts of largely unencumbered current assets. The deal left SunGard with a nearly 5-to-1
debt-to-equity ratio. Why do you believe lenders might have been willing to finance such a highly leveraged transaction?
Explanation / Answer
As we can see that Sunguard's business that is providing application and transaction software services and creating backup data systems in the event of disaster.has has steady cash flow.
Thus because of this predictable and steady cash flow associated with SunGard’s disaster-recovery business the Lenders are confident that the loans can be repaid.
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