The Trident IV private equity fund will acquire a 51 percent majority interest in the insurance business of Fiserv Inc., an information technology services firm, in a deal worth more than $500 million, Fiserv said.
Trident IV, managed by Stone Point Capital LLC, a private equity firm based in Greenwich, Conn., will invest approximately $205 million in equity and $335 million in debt to acquire the business, said Brookfield, Wis.-based Fiserv.
Fiserv said it expects to receive approximately $515 million in net after-tax proceeds and to retain a 49 percent equity interest in Fiserv Insurance Solutions. The transaction is anticipated to close in July 2008, "subject to regulatory approval and other customary closing conditions."
According to Fiserv, which also provides solutions to banks and securities processing firms, the transaction will impact nearly all of Fiserv's Insurance segment. The current management team and employee base will continue with the company, which will be known as Fiserv Insurance Solutions Inc.
A Fiserv spokesperson said no layoffs were planned as a result of the move, and that relocations are also not planned but "may be looked at later."
"We believe there are a number of exciting growth opportunities for the business, and we look forward to working with the Fiserv Insurance Solutions management team to pursue these growth initiatives as an independent company focused on serving the insurance marketplace," said Chuck Davis, chief executive officer of Stone Point Capital.
Stone Point Capital and its predecessor operations have a 20-year history of investing in the global insurance and financial services industries, said Fiserv.
Stone Point primarily targets investments in the insurance and financial services industries, including insurance underwriting, distribution and services, benefits and health care, asset management and retirement savings, and banking and depository institutions.
Fiserv said it expects to receive approximately $515 million of net transaction proceeds and expects slight 2008 earnings dilution of 2 cents to 4 cents per share, "or approximately 1 percent depending upon reinvestment of the net proceeds."
In connection with the sale, Fiserv also re-affirmed its 2008 adjusted earnings per share guidance of $3.28 to $3.40 from continuing operations. "Fiserv expects the transaction to be accretive to its long-term revenue, earnings and margin growth rates," the company said.
"The insurance software market is in a period of rapid change, with Oracle's recent acquisition of two leading independent providers, and now Fiserv's deal with a private equity firm. We predict at least half a dozen similarly significant transactions will occur before the end of the year," said Matthew Josefowicz, director of the insurance practice at Novarica, an independent advisory firm based in New York.
"Say what you will about tough times in the financial services sector these days, some investors still believe there are brighter days ahead," said Donald Light, senior analyst with Celent, a Boston-based financial research and consulting firm.
"The latest evidence is the purchase of a majority interest in Fiserv's insurance businesses by private equity investor Stone Point Capital. This follows the 2005 acquisition of SunGard by several private equity firms. These purchases represent a view that in good times or bad, financial institutions are going to need the right technology and infrastructure to succeed," he added.
"This purchase should be a good thing for Fiserv Insurance and its customers. Private equity investors have been willing to make targeted investments in their firms," he concluded. "Fiserv Insurance's new owners are already talking about future growth opportunities."
In a related action, the Fiserv board of directors authorized the repurchase of up to an additional 10 million shares of Fiserv common stock.
Under the new authorization, which does not expire, Fiserv may repurchase shares in the open market or in privately negotiated transactions at the discretion of management, subject to its assessment of market conditions and other factors, said Fiserv.
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