The deal for Australia’s Link Group (tkr: LNK) is a competitive one, insofar as Link Group has disclosed. The competing prospective acquirers include SS&C Technologies (tkr: SSNC), and a pair of private equity firms – Sydney-based Pacific Equity Partners (Link’s former owner) and Carlyle Group (tkr: CG) whom are bidding together. Our best guess is that SS&C will win the deal with a definitive agreement announced in January/early February contingent upon completion of due diligence, revised offers and board approvals (see “Deal Timeline” for particulars).

A Familiar Customer Base and Strategic Geographic Footprint. Significant Recurring Revenue and Opportunities for EBITDA Margin Lift

• Link Group’s customer base includes institutional funds, banks, listed companies and government clientele – constituents that we believe SS&C could leverage. In addition, Link’s geographic footprint would bolster SS&C’s presence in key markets including Australia, U.K./Ireland/Europe.
• 84% of Link Group’s revenues were “recurring” as of the company’s most recent public update.
• Link Group’s various services including retirement services, fund solutions, shareholder services and more seem poised for significant margin lift through a combination of advanced automation (AI/ML/RPA – intelligent process automation) and general productivity improvements/ waste reduction. Link Group’s Operating EBIT Margin is approximately 13%. See “Link Group Overview” for additional detail.

We Prefer Strategic Acquirers to Private Equity Firms

Speaking from experience, companies that are considering a Sale are typically better served when acquired by a strategic acquirer rather than a private equity firm. This is especially true when the strategic acquirer and the acquired company have similar core businesses and therefore may leverage technology and operational infrastructure, customers, domain knowledge and process expertise. Private Equity shops on the other hand – unless they have a similar asset in the portfolio that may be paired with a newly acquired company – primarily generate returns on newly acquired assets by layering on cheap debt and deeply cutting OpEx (often cutting into muscle). Deep operational cuts do not facilitate the acquired company’s ability to scale. To be blunt, the PE approach oftentimes is an impediment to growth.

Management Team Due Diligence

Any M&A due diligence process worth its salt begins with an in-depth evaluation of the target company’s executive management team and key employees. This is especially important when the target company competes in an area that is outside of the acquiring company’s core competency. “Is the target company’s leadership team one that is capable of scaling? What is the team’s operational track record? What is the team’s philosophy around running the business? Does it value profitability, or, is the team one that values growth above all else? Is the management team strategic in its approach to capital allocation or wasteful? Is it acquisitive? Importantly – is the target company’s culture a good fit with the prospective acquirer’s culture?” These are a few of the relevant questions to seek answers to in a formal due diligence process. Answers to these questions may be ascertained over time and in a more thorough manner in the absence of a formal sale process.

In the case of Link Group, SS&C knows this business well. Thus, Link’s domain expertise is of less value. Below we provide a snapshot of Link Group executives Vivek Bhatia and Dee McGrath.

• Asset Management
• Financial Services
• Fintech
• Information Services
• Investing
• M&A
• Mergers and Acquisitions
• Software
• Strategy
• Technology