Drawn out takeover talks drag down Misys sales

Behind Monday’s headlines of Misys’s board accepting a £1.27bn cash bid from Vista Equity Partners, the perennial takeover target also updated the market on recent trading – and the figures were not exactly glowing.

Third-quarter revenues fell by 12 per cent year-on-year fall to £89m, which the London-based group attributed to customers procrastinating over software licence purchases.

“What we saw was customers delaying their decisions, waiting until the ownership discussions were concluded. We are confident that our products and services are still going to be there for them. The cost to our customers of waiting for four weeks to see what happens is so minimal that they will sit there and make their decision next month.” – Tom Kilroy, Misys acting chief executive

The situation begs the question: How long can drawn out takeovers be used as an excuse for sluggish sales?

Tintin Stormont of Singer Capital Markets suggested that the dismal trading figures would be a catalyst for shareholders to accept the deal and cash in whilst they could. “In light of the deterioration of the group’s trading, we believe that investors are likely to be more predisposed to accept the offer on the table,” he said.

Although the trading trough may be influential for the takeover, they do not bode well for the software group’s full year results, due to be reported in July.

Misys has withdrawn its previous medium-term growth and operating margin targets that it reiterated in January, and analysts are gloomy about the outcome for the group’s full year figures.

“The accompanying trading statement is poor, with third quarter group sales and orders down – 12 per cent and 18 per cent respectively due to a poor market backdrop and customers delaying spending decisions. Treasury and capital markets orders are down 45 per cent in the third quarter versus 14 per cent for the year to date…which all point to a weak fourth quarter as well. These trends underpin our previous concerns over a Temenos-Misys tie up.” – Julian Yates at Investec

However, with previous bidding rivals Temenos and CVC/ValueAct both said to be weighing possible counter offers, yet more uncertainty about the future owners of Misys could further deter customers.

Should the bidding war drag on (the management team noted wearily that it had been 39 days since the initial bid), customer orders could be delayed yet again, and the group’s figures could be further hit – another reason for investors to feel content with 350p a share.