SunGard Data Systems Inc has announced plans to spin off its availability services division in order to reignite growth in the operation following several quarters of slowing growth.
Wayne, Pennsylvania-based SunGard has two main parts to its business: financial software and processing services; and business continuity and disaster-recovery services, which under the availability services name accounted for 33% of the group’s $899 million sales in the second quarter ending June 30, 2004.
SunGard’s board of directors has now approved a plan to spin out the availability services unit through a tax-free distribution of shares. The move is expected to be complete by the end of the first quarter of 2005.
James C Simmons, group CEO of SunGard availability services, will become president and CEO of the spun-off company, which will retain the SunGard name and brand.
SunGard availability services ranks as the second largest player in the BC/DR (business continuity/disaster-recovery) market behind IBM Corp, which acquired the BC/DR operations of Schlumberger in April 2004.
SunGard took a leap forward in the sector when it acquired the BC/DR operations of Comdisco in 2001 for $850 million, and it is the more profitable of SunGard’s two divisions with an operating margin of 30.5% in the second quarter of 2004, compared to a margin of 17.1% in its financial software business.
The Comdisco takeover doubled annual revenue for availability services to more than $1.1 billion, but it has struggled for internal growth in recent quarters. In the first half of 2004, sales at availability services rose 2% to $590 million, which compared to 23% growth from the financial software unit.
SunGard said it expects only a modest improvement in the availability services division’s revenue in the second half of 2004, and growth of only low to mid-digit percentages in 2005, although it hopes that the separation will have an energizing effect.