For years, CEOs and shareholders have been buzzing about the blockbuster potential of equity carve-outs. A recent deal between Sungard Availability Services and Resurgens Technology Partners has renewed interest in this unique financial transaction.
Equity carve-outs allow private companies to create a wholly new subsidiary company which they can then sell to an interested party while maintaining ownership and management of their core competencies. Public companies are able to execute a similar transaction with an IPO in exchange for cash.
It’s a risky proposition, but for Sungard Availability Services (Sungard AS), there’s reason to feel optimistic. In May of this year, Sungard sold one of its child companies, Assurance Software, to Resurgens Technology Partners, an Atlanta-based Venture Capital firm, for an undisclosed sum in a classic carve-out negotiation.
The deal will position Assurance to further its growth and expand market position in the growing SaaS security and compliance space. The company uses a multi-tenant SaaS model to help clients develop disaster recovery plans and disaster-response communications.
Assurance executes business impact analysis, incident management, disaster recovery planning and reporting, and emergency notification management. Before the carve-out, Assurance focused mostly on on-premise software for customers which was devoted to business continuity. The new organization is now completely devoted to SaaS and manages all of a customer’s business continuity environment. The deal also gives the fledgling company more latitude to partner with other software vendors, something that was difficult to do when it was under the umbrella of Sungard AS.
For Resurgens, the deal presents an opportunity to corner a fast growing market with no real dominant player to compete with.
The carve-out also allows Sungard AS to focus on its core strengths, which are traditional disaster and relief recovery services not entrenched in the software space. And though they’ve recently parted ways, there will still be a connection between the two organizations. Sungard AS will be Assurance’s first client in the months to come.
Only time will tell if this deal was a slam dunk, but this carve-out seems to be off to a strong start.