Sterling Software Inc, the Dallas, Texas-based applications development company is to buy out fellow applications developer Synon Corp following Synon’s failure to take itself public last year. Sterling will pay $79m in newly issued stock for Synon, based on last week’s closing prices, handing over nearly 3 million shares or the equivalent of 3.7% of the combined companies. According to Sterling, the deal allows it to expand into the IBM Corp AS/400 and Window NT markets, while Synon’s shareholders, for their part, gain access to a publicly traded stock. Synon filed for an initial public offering in the US in May last year but the flotation was eventually called off in July, presumably following a lack of interest. The company, which was founded in 1983, is 49.6% owned by venture capital company General Atlantic Partners LLC, which no doubt pushed hard for an alternative exit route once the IPO failed, being anxious to liquidate its investment. According to its IPO filings, Synon’s revenues have been growing at around 10% per annum since 1992, but this growth slowed to just 4% last year with annual revenues reaching $79m, and the company had substantial accumulated losses. Synon’s cash reserves were also perilously thin last year, and Richard Goldberg, Synon’s CEO noted that by selling out, his company was now, joining ranks with a financially strong, rapidly growing, market leader. No indication has been given as to how many people will stay on from Synon after the deal closes, but unless there have been radical changes made to the corporate structure since the IPO filing in July last year, some major cost cutting is afoot. Sterling Software’s CEO Sterling Williams has stated that the deal will be accretive to his company’s earnings per share. With Sterling expected to make $0.36 a share for its upcoming quarter to June this year, this leaves Synon with the task of reaching $1.1m of profit per quarter in order for the acquisition to be non-dilutive. For the three months to March last year, Synon made profits of just $61,000.
