Misys: Sign of IPO crisis or a deal that went wrong?

By:
Mark Baker
Published on:

Bankers say Misys is a good company that should be public. The failure of its IPO last month was therefore a huge surprise. Euromoney investigates why it was pulled: were the company, the market or the lead managers at fault?

stopwatch bankers-600

The IPO of Misys should have had everything going for it. Having been listed before, the company was already known to equity investors. With four global coordinators whose equity capital market (ECM) credentials are nothing short of stellar, a further three bookrunners and a financial adviser, the deal had no shortage of expertise to guide it to the finish.

Secondary markets have been jittery but were performing moderately well – the FTSE 100 is up nearly 10% since the start of the year. And the backdrop of the software firm’s client base being under pressure to look for smarter ways to cut costs ought to have given it an attractive pitch as a restructuring play.

But still it failed. Spokespeople for Misys did not respond to interview requests for this article, but Euromoney has spoken to more than a dozen ECM professionals about the deal, all of whom requested anonymity to discuss it. 

These kinds of updates are sometimes like someone suddenly telling you that you’re getting married tomorrow. You might start to think, I didn’t really think about this and I’m not sure I want to be in it after all
 - Syndicate official

The reasons they give for the deal’s collapse on October 27 vary widely. What’s clear is that with so many moving parts, almost anything can be blamed – there are at least 19 reasons (see box below) cited in bankers’ discussions with Euromoney.

However, if you had to pick one fault that likely made all the other factors insurmountable, it would be the tight timeframe – a pressure that meant feedback was less informed than usual, an already aggressive valuation started to look even more so, and the process was more vulnerable to external jitters than it should have been.

The blame for that pressure, bankers say, is largely down to a timetable set by Misys’s private equity owners, but could those bankers themselves have offered better advice?

Origins

Throughout its history, Misys has been something of a chameleon. First set up in 1979 to sell computer systems to the insurance industry, the company went through a blizzard of mergers and acquisitions over subsequent decades that saw it broaden its focus through healthcare to asset management and banking.

By 2011, it had mostly shed its healthcare assets to concentrate on the financial services sector, part of a strategy to put behind it a difficult period after the bursting of the dotcom bubble.

Blame game: 19 reasons people give for why the Misys IPO failed

The IPO of software company Misys was cancelled on October 27 after a tough period for UK IPOs and amid a challenging market backdrop. But why do bankers think the deal failed? Below are the 19 reasons, in no particular order, they gave in various discussions with Euromoney during the past week:

1) The equity story: Buy side didn’t buy it

2) Reporting currency: I’m confused. What exactly was the revenue growth then?

3) Syndicate structure: Too many glo-cos, not enough control

4) Timeframe: A summer mandate and a US election deadline? Never going to happen

5) Market conditions 1: Macro jitters — rates, inflation, growth

6) Market conditions 2: Other deals trading badly

7) Time of the year: Active investors are suffering, not much time left to find alpha

8) Valuation: Seller looked at Temenos, but market looked at Sage

9) Shifting sands: Deal smaller than I thought, less interested now

10) Been listed before: What’s changed to justify new valuation?

11) Seeing the word "punchy" in investor feedback

12) Brexit: obviously

13) US election: obviously

14) PE shareholder paying itself? Hmm

15) Client sector: Shaky outlook

16) Issuer sector: Banking software. Nuff said

17) Noise, fanfare: Too much pre-deal

18) Book quality: Not enough anchors, too much fluff?

19) Early look premarketing: only one round, not two

That period had included a profit warning in 2005 for the banking division, with shareholders forcing the company to withdraw parts of a bonus scheme in response. It also marked the end of the tenure of Kevin Lomax, the computer graduate who had helped found the company before becoming executive chairman in 1985.

Misys stock was first traded in 1987, on a now-defunct junior board of the London Stock Exchange called the Unlisted Securities Market (USM), the predecessor of today’s Alternative Investment Market.

The USM was appealing to small, young firms such as Misys, allowing low free-floats of less than 25% – an eerie harbinger of something that would become an issue in this year’s failed IPO – as well as freeing them from many other requirements of the main market.

By 1990 it was ready to make the jump to the Official List, where it stayed for 22 years, joining the FTSE 100 in 1998, the first IT company to do so. It remained public until its acquisition for £1.3 billion by private equity firm Vista Equity Partners in 2012, by which time it was a FTSE 250 member.

Vista brought in a new CEO, Nadeem Syed, who had previously been COO at HR software provider SumTotal, to implement a restructuring and streamlining plan that he now says has made Misys into an "industry leading financial software company with the broadest and deepest product portfolio in the market".

As far back as 2014, talk had circulated that Vista’s owner was considering a sale or new IPO of the business, but it was not until July 2016 that the pace started to pick up, with banks mandated for what was still said to be a process with both options open – either a listing or a trade sale.

Moelis was financial adviser to the company; Bank of America Merrill Lynch, Goldman Sachs and JPMorgan were mandated as sponsors, global coordinators and bookrunners; Morgan Stanley was an additional global coordinator and bookrunner; Barclays, Credit Suisse and Deutsche Bank provided yet more bookrunners.

Valuation was sketchy at this point, but amid the flurry of coverage in the media the figure of at least £5 billion for enterprise value, including debt, began to circulate. That put the company at roughly three times the value it had when it was taken private.