Silver Lake and six other buyout firms were putting the finishing touches on an $11.3 billion acquisition of software giant SunGard tonight. Here’s our story to run in tomorrow’s Mercury News (free registration), or see extended entry.

Mega tech deal on tap
By Matt Marshall
Mercury News

A group of large investors organized by Silver Lake Partners of Menlo Park is expected to announce Monday that it has agreed to acquire SunGard Data Systems, a major software company, for $11.3 billion.

The purchase is the largest private buyout of a technology firm, and the second-largest buyout of any type of company, after Kohlberg Kravis Roberts’ $25 billion acquisition of tobacco and food conglomerate RJR Nabisco in 1989.

According to a person familiar with the deal, the investor group will pay $36 a share for SunGard and assume $500 million in debt. The price is $800 million more than the amount circulated last week in media reports about a possible deal. SunGard shares closed at $31.55 last week.

SunGard, of Wayne, Pa., produces business-processing software for large financial, higher education and public institutions. The company was in the midst of planning a spinoff of its separate disaster data recovery unit when talks with the investor consortium began.

Under the accord, SunGard will not sell off its data recovery unit.

In addition to Silver Lake, the other members of the investment consortium buying SunGard are Bain Capital, the Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts, Providence Equity Partners and Texas Pacific Group.

The person familiar with the deal told the Mercury News that selling the company to private investors will allow SunGard to more easily implement its core strategy without the pressure of having to produce quarterly profits for Wall Street.

SunGard Chief Executive Cristobal Conde is expected to reveal more details about the deal during a conference call with investors early Monday morning.

The transaction is expected to be completed in the third quarter of 2005.

SunGard had revenue of $3.56 billion last year, employs more than 10,000 people and serves more than 20,000 customers.

Ever since the technology bubble burst, buyout firms like Silver Lake have actively sought to invest in tech companies that they believe are undervalued in the marketplace. The SunGard deal continues an ambitious run by Silver Lake, which also acquired Scotts Valley disk-driver maker Seagate in 2000 for $2 billion, at the time the largest tech buyout, and UGS for $2.05 billion last year.

Silver Lake was formed in 1999, by well-known Silicon Valley investor Roger McNamee along with Jim Davidson, David Roux and Glenn Hutchins. At the time, they feared the stock market couldn’t sustain its high levels and wanted to prepare a fund that could invest in companies that needed help restructuring during tougher times.

Their thinking proved prescient, and the firm has subsequently performed well. Other Silver Lake investments include Ameritrade, Business Objects, Flextronics, Gartner Group and MCI.

Last year, Silver Lake finished raising $3.6 billion for a second fund, the largest private equity fund ever raised for investment solely in technology. At the same time, McNamee moved to ratchet down his role at the firm and launched a separate private equity fund, Elevation Partners, focused on media and entertainment.

Other large buyout firms have also been raising huge investment funds. Carlyle, TH Lee, Blackstone, Goldman Sachs and Warburg Pincus are all reported to be in various stages of raising funds of $6 billion or more.

The Mercury News strives to avoid use of unnamed sources. When unnamed sources are used because information cannot otherwise be obtained, the newspaper generally requires more than one source to confirm the information. Contact Matt Marshall at or at (408) 920-5739.

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