Misys pounces to capture C-ATS Software

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The Independent Online
MISYS, the software group, returned to the acquisition trail yesterday when it pounced on C-ATS Software, a US operator specialising in risk management products for banks, with a $60m (pounds 36m) cash bid.

The deal was welcomed by analysts as a sign that the UK's largest software group is strengthening its grip on the banking software market.

Kevin Lomax, Misys chairman, said the addition of C-ATS's products allowed the company to offer a complete range of risk management systems to banks. "Our customers don't want single products. They need an integrated solution," he said, adding that Misys offered C-ATS an international distribution channel.

The near-collapse of Long-Term Capital Management, the hedge fund, and other debacles have highlighted the need for banks to keep a close eye on risks. But they are also under pressure to balance the risk of their exposure so they can deploy their capital more efficiently. Misys believes risk management packages will take up an ever-larger proportion of banks' IT spending.

The management of Nasdaq-listed C-ATS, which controls 23 per cent of the shares, have accepted Misys's bid, making it unlikely that another predator will come along.

However, experts said Misys was not gaining its target cheaply. In the year to last December C-ATS reported a pre-tax loss of $2.6m on revenues of $18.5m. Its growth in recent years has been patchy. "It's a good strategic acquisition, but they're certainly not underpaying," said Roger Phillips at investment bank Granville.

Although encouraged by the resumption of deals, observers remain divided on Misys's prospects. After a storming run which propelled the company into the FTSE 100 in the spring, Misys shares have slumped on fears that banks would cut spending on IT. The shares, ejected from the FTSE last week, yesterday dropped a further 9p to 371p.

The main worry is about Medic, the supplier of software for the US healthcare industry, which Misys bought last year. Analysts are concerned that the division, which is a departure from Misys's traditional business, has sluggish growth prospects.

Meanwhile, competitors in the software industry criticise Misys for skimping on development spending and not developing a services business.

However, others argue that, based on the company's current growth prospects, the shares are too cheap. Phill Davies, an analyst at stockbrokers Capel Cure Sharp, expects profits of pounds 123m in the coming year, rising to pounds 156m in 2000.

"They are getting 20 per cent growth across all their divisions," says Mr Davies. "At these levels we would be buyers of the shares."

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