Industry | Analysis

SunGard HE and Datatel: 'An Arranged Marriage'

Two of the biggest players in the education space have gone all in with their chips in a game not of their making. SunGard Higher Education, which became one of the largest companies in the segment, is being acquired from SunGard Data Systems in a $1.775 billion dollar deal by the same private equity firm that owns Datatel, another major education behemoth. According to a statement, the two companies will operate as a single entity under Hellman & Friedman, which bought Datatel in 2009. The combined business will acquire a new name and will continue to focus on serving educational institutions.

Datatel's current CEO, John Speer, will become CEO of the new firm. Ron Lang, who heads SunGard HE, will become vice chairman of the board of directors. The new company is expected to have 3,000 employees in 40 countries.

The same statement assured customers that the combined company plans to continue investing significantly in existing lines and "to accelerate research and development to build new solutions to solve the evolving challenges institutions face."

"Combining the resources and talent of these two quality companies will enable us to be more responsive to the changing environment and challenges facing education," said Datatel's Speer. "Together we will be able to better serve the global education community."

What's not addressed in the statement is how the product lineups will shake out. Both operations have offerings that cut across precisely the same categories: enterprise resource planning, human resources, finance, donor management, business intelligence and analytics, IT management, student services, self-service, portals, and many more areas.

SunGard HE's Lang called the combination "a strong strategic fit [with] common values."

An "arranged marriage" is how Nicole Engelbert described the news. Engelbert is a practice leader in public sector, education and healthcare life sciences for Ovum. "This is not a love match," she said. "This is an arranged marriage. It's not Datatel saying, 'We want SunGard.' It's the private equity guys who own them both saying, 'If we combine these two companies, it could be a more profitable and successful company.'"

Engelbert will be publishing an Ovum "Comment"--an analysis of the deal--for its customers Aug. 8.

According to the analyst, SunGard HE, with about 1,500 contracts on contract, is the larger of the two firms. Datatel, she said, has about 700 customers, and those tend to be smaller institutions on average than the ones working with SunGard HE.

Engelbert said she doesn't anticipate dramatic changes to either company or their respective product and service lines for the foreseeable future. "It's important to remember that both of these firms, unlike other companies, in the market are exceptionally reputable and entrenched in their market. I can't imagine a scenario where in the short to medium term they'd do anything to jeopardize their clients or their community of clients from the perspective of shuttering or sun-setting products.... [SunGard HE's] Banner and [Datatel's] Colleague will exist in their separate forms for years to come."

However, Engelbert said she does expect major changes to take place organizationally. "It'll be dramatic and probably painful." People at the top will probably be trimmed from the newly combined company first. "They've got two of everything at that level and more," she noted. "Neither firm is known for being 'lean and mean.'" Beyond that, the sales organization too will probably be revamped.

She added that she doesn't foresee cuts in the client services or support areas. "They don't want to jeopardize their installed base. That would be insanity."

Also left intact, she predicted: SunGard's professional services. "That is something that has always set it apart from Datatel or Oracle or Campus Management. SunGard's professional services are above and beyond. They truly have a professional services organization that the other firms could never really compete with."

For now, Engelbert noted, the two companies will continue to operate independently "until all the i's are dotted and the t's are crossed and the purchase is approved. That'll take quite a while." After that, she said, "It'll take months for SunGard and Datatel to figure out what the name should be and how the company should be structured."

When might those details emerge? She predicted next March. That's when SunGard HE holds its annual customer conference. In 2012, SunGard Summit opens March 26 in Las Vegas, a town known, of course, for its big-time face-offs over the poker table.

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