SunGard Data Systems Inc. - Company Profile, Information, Business Description, History, Background Information on SunGard Data Systems Inc.

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History of SunGard Data Systems Inc.

SunGard Data Systems Inc. is one of the largest firms in the information services industry and is a leading provider of disaster recovery services, proprietary investment management software, and data processing services. SunGard's predecessor, Sun Information Systems, pioneered the development of disaster recovery services for banks and other companies that relied heavily on computers for daily operations. The company's investment management software systems are designed for trust and investment accounting, securities trading and accounting, portfolio management, employee benefit plan management and international banking. SunGard also provides remote access data processing and automated mailing services.

SunGard began as a subsidiary of the oil giant Sun Co. In the mid-1970s, Sun Information Services (SIS) had served as the data processing arm of Sun Co. and also provided data processing services to companies in the greater Philadelphia area. As Sun's business became increasingly dependent on the use of computers, SIS President John Ryan noted that the company could lose up to $3 million by the third day if its computer system failed. His division developed a disaster contingency plan for Sun, in which daily transactions were recorded on backup tapes and stored at an off-site area. Should Sun's mainframe computer fail, these could then be loaded into an alternate mainframe and business could continue running as usual.

In 1978, SIS received a request for a proposal from a group of Philadelphia businesses searching for a similar disaster recovery system. Based on its own program, SIS then presented itself as a "commercial hot site vendor," offering subscriptions to data storage and emergency off-site data processing on an IBM 370⁄158 mainframe computer. According to the program, should a disaster prevent a subscriber from accessing its computer system, SIS would load the subscriber's back-up data into its system and allow access to its computers so that business could begin running as usual the next day. SIS won the contract and immediately began soliciting subscriptions from other businesses. Within the first year, 80 companies had subscribed to the service. By 1980, SIS had 110 subscribers, each paying between $3,500 and $12,000 per month for services.

In the late 1970s, having diversified into several non-oil related businesses, Sun Co. maintained four computer-related subsidiaries--SunGard Services Co., Applied Financial Systems Inc., Catallactics Corp., and NMF Inc.--in addition to SIS. When oil prices hit $30 a barrel in the early 1980s, Sun decided to spin off a number of its subsidiaries and asked SIS president Ryan to search for potential buyers. Convinced that SIS and these four companies could form a profitable business, Ryan and a group of venture capitalists arranged to purchase an 80 percent share of the five subsidiaries for $19.5 million in cash and notes in 1983.

That proved to be a fortuitous year for the spin-off company. In 1983 the Comptroller of the Currency began requiring national banks to have a testable backup plan should their computer systems fail. SunGard and a rival firm, Comdisco Disaster Recovery Services Inc., were the only two companies in the United States offering emergency backup services. Thanks to the new banking regulations, SunGard's disaster recovery customer base more than doubled to 280 subscribers. Each company paid upwards of $50,000 in subscriptions fees, plus an additional user fee of $25,000 or more for use of SunGard's computer systems. By 1985, disaster recovery services brought in 49 percent of the company's $58.5 million total revenues; financial processing software and services accounted for 47 percent.

In March 1986, the company went public on the NASDAQ exchange under the name SunGard Data Systems Inc. Its disaster recovery services became a wholly owned subsidiary under the name SunGard Recovery Services Inc. The initial public offering raised $23.7 million dollars. SunGard paid its debts to Sun Co. and other venture capital firms that financed the spin-off, reinvesting the remaining $10.2 million. Profits that year totaled $5.5 million, on revenues of $69 million.

During this time, SunGard sought to improve its offerings in the data processing arena, acquiring a total of 27 companies between 1986 and 1994, primarily in the investment support services arena. SunGard made four acquisitions in 1987, the largest of which was Devon Systems International, a provider of software for currency and interest rate options trading, purchased for $20 million in cash, notes, and common stock. That year, profits rose 50 percent to $8.2 million on revenues of $91.1 million. Fifty percent of revenues came from software sales and operation, and 50 percent were attributable to disaster recovery services.

By 1988, SunGard Recovery had "hot sites" in Chicago, San Diego, Philadelphia, St. Paul, and London. That year, the company also began offering downtime services, which allowed customers to cope with lost time caused by more regular computer failures in communications and processor systems. The following year, SunGard entered a joint venture with STM Systems Corp., a Toronto-based firm, to provide disaster recovery services in Canada under the name STM-SunGard Recovery Services.

In 1989, another competitor entered the disaster recovery arena. International Business Machines Corporation (IBM), whose mainframe computers SunGard used to backup client data at its hot sites, began offering backup services for many of its own systems, including System⁄36, System⁄38 and AS⁄400 computers. SunGard issued a press release welcoming IBM's entry into the industry and told American Banker that competition with IBM would "make us a better company." At that time, SunGard Recovery and Comdisco had penetrated less than 50 percent of the disaster recovery market. Both believed there was room for a third competitor.

IBM initially captured some big accounts from SunGard's customers who worked with large IBM systems. However, SunGard took measures to prevent further sales erosion, and, by 1991, had curtailed the loss of customers to its new competitor. Despite increased competition, disaster recovery sales grew by over 30 percent in 1990, fueled by the earthquakes that shook California as well as several other natural disasters across the United States. In 1990, company-wide sales hit $262 million, up 59 percent from 1988.

In 1989, SunGard merged with Daytron Corp., a large supplier of bank data processing software, and also purchased Warrington Financial Systems, Inc., a British supplier of bank treasury software, for $65.3 million in cash. Following this acquisition, the company formed a new division, SunGard Financial Systems, which included subsidiaries Warrington, Devon Systems International Inc., Wismer Associates Inc., Money Management Systems Inc. and SunGard Investment Systems Inc. In 1990, SunGard expanded into the securities trading management arena, purchasing Phase3 Systems, Inc., a supplier of "integrated, real-time securities transaction processing systems for equity and fixed-income instruments" for undisclosed terms. Phase3 served about 35 corporate customers across the United States.

SunGard's growth in investment support services soon began to outpace its disaster recovery division. In 1991, investment support services brought in approximately 58 percent of the $262 million in sales. Following its long string of mergers and acquisitions, SunGard sought to pare down some of its services, selling its Daytron Mortgage Systems Division to Stockholder Systems Inc. in 1991 for an undisclosed price. It then acquired Shaw Data Services, a top supplier of portfolio management services to banks and other institutional investors., for approximately $35 million. This was all in keeping with what Richard C. Tarbox, vice-president of corporate development, said was SunGard's growth strategy: "to provide investment support on a service basis ... [and have] something to offer all managers of money."

By its tenth anniversary in 1993, SunGard had firmly established itself as leading provider of investment management software and disaster recovery services. That year, SunGard shares began trading on the London Stock Exchange and earnings rose 49 percent from 1992, to $38 million on revenues of $381 million. Astute acquisitions and a solid marketing strategy formed the cornerstone of its growth, and the company seemed well prepared to address an ever-expanding market for its services.

Principal Subsidiaries: Shaw Data Services, Inc.; SunGard Capital Markets Inc.; SunGard Computer Services Inc.; SunGard Financial Systems Inc.; SunGard Investment Systems Inc.; SunGard Mailing Services; SunGard Planning Solutions Inc.; SunGard Recovery Services Inc.; SunGard Shareholder Systems Inc.; SunGard Trust Systems Inc.; SunGard Digital Solutions Inc.; SunGard Business Systems Inc.

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Further Reference

Koselka, Rita, "Blue-Chip Backup," Forbes, January 26, 1987, p. 80.Millman, Joel, "The Great Escape, Forbes, November 11, 1990, p. 234.Tyson, David O., "IBM to Compete with Major Vendors in Disaster Recovery Market," American Banker, April 5, 1989, p. 9.Zipser, Andy, "SunGard Shines Again: After a Dull Year, It's Set for Fresh Growth," Barron's News and Investment Weekly, October 21, 1991, p. 15.

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