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Updated 11/18/2022 –  11:11 Systems has completed the acquisition of Sungard Availability Services’  Recovery Services and Sungard AS’ Cloud and Managed Services business’.

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Updated 05/08/2019 – Sungard AS emerged from bankruptcy on 05/07/2019. The firm’s turnaround is described as the fastest pre-negotiated restructuring in US corporate history. The result is Sungard AS debtors having taken an $800 million haircut, the recovery service received $100 million of new liquidity from its creditors and a new CEO.

The firm’s new ownership and largest shareholders now include Angelo, Gordon & Co., LP; The Carlyle Group Global Credit; FS Investments and GSO Capital Partners LP.

However, the quick fix did not solve the problems that forced the firm into bankruptcy, as described below.

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Data infrastructure and disaster recovery company Sungard Availability Services (AS) announced it was filing for bankruptcy on April 01, 2019. Sungard AS, which helped keep Wall Street running through 9/11, says its customers include 70 percent of Fortune 100 companies. It boasts 90 hardened IT facilities connected by a redundant, dedicated network backbone, along with 18 mobile facilities staged in strategic locations is saddled with hefty debt from its private equity backers.

In addition to a huge debt load, the once high-flying Pennsylvania-based firm faces falling margins as it struggles with growing competition from cloud rivals amid a shift away from on-premises/co-location backup. These factors forced the firm to seek relief from the courts.

The Sungard AS Chapter 11 plan is expected to be filed in New York during May 2019. The bankruptcy plan reportedly includes a write-off $800 million of the company’s $1.25 billion debt. Chapter 11 protection is a part of the US Bankruptcy Code that allows a company to reorganize its assets while handing over the business operations of the company to its debtors.

Under the Chapter 11 proposal, hedge fund creditors that specialize in turnarounds and liquidations, sometimes dubbed “vulture capitalists” — including Blackstone Group’s LP’s GSO debt investment unit, Angelo Gordon & Co., Carlisle Group, and Contrarian Capital Management — will take control of Sungard Availability.

The hedge fund will replace the buyout investors who bought the formerly publicly traded company for $11.4 billion in 2005. The original private equity sponsors include: — Bain Capital, Blackstone Group, Providence Equity Partners, KKR & Co., Silver Lake Management, and Texas Pacific Group (TPG) Capital.

Despite claims that most creditors back the bankruptcy plan and that Sungard AS would emerge from the wreckage a stronger, more competitive business, the move rocked the industry. Hedge funds are not typically long-term investors causing alarm among SunGard AS employees about the company’s future. Employees fear the company will be asset-stripped and not survive, as hedge funds seek to recoup money lost on the debt haircut. Sungard AS insists that won’t happen. Sungard employs over 3,000 people according to its website.

Sungard AS’s data center model, “shared infrastructure,” of physical locations for backup IT systems, has become outdated as cloud-based infrastructure, led by Amazon Web Services, and Microsoft Azure have grown to dominate firms’ IT backup operations.

Andrew A. Stern, Chief Executive Officer, Sungard Availability Services said.

There’s no question the shift to cloud is part of what’s challenged us. But even before the cloud, by the late 2000s, “the approach the company had taken to disaster recovery really hadn’t changed in 20 years — and the world had moved on. … We had been slow in recognizing the business had to change.

Sungard initially tried to meet rival remote-server “cloud”-based systems with its own “private cloud” solutions. But its large corporate clients by 2016 were migrating to the large, secure cloud systems maintained by Amazon, Microsoft, and other giant companies. CEO Stern added, “We suddenly found ourselves competing with much bigger environments at much greater scale.”

Sungard couldn’t beat them, so it signed up as one of 130 Amazon-audited managed service partners, recruiting and customizing Amazon Web Services for corporate disaster-recovery customers, including, most recently, government agencies in England. Mr. Stern added, “But that change has taken time.”

Philly.com summarizes Sungard’s history. Sungard’s lineage starts in the mainframe days. It started off as Sun Information Systems, founded in the 1970s as a backup for early data systems at oil and chemical plants run by the former Sun Oil Co. In the 1980s, founder John Ryan diversified the company, offering backup services to banks as they computerized deposit, loan, and investment records. In the tech boom of the late 1990s, publicly-traded SunGard Data Systems was worth more than Sun Oil’s parent company, Sunoco.

During this time SunGard Data acquired competing systems in the same market sector and let them continue competing for a time. In the late 1990s then-chief executive, Cristobal Conde began combining SunGard products into large groups focusing on recovery (Availability) and was using its profits to buy dozens of financial, government, and college software services across Europe and Asia, and North America.

The 2005 acquisition of SunGard Data by the buyout firms was one of the biggest deals of its kind before the 2008 financial crisis. In 2011 sales peaked at over $5 billion and employment topped 20,000.

But with its owners mostly concerned with pulling cash out of the company, it lost what its leaders admitted was a “tsunami” of corporate customer cancellations as the disaster-recovery market changed, and the company didn’t keep up. In 2011, SunGard Data sold its main college business to Virginia-based Ellucian for $1.75 billion.

In 2014 SunGard Data split in two. In 2015 the larger SunGard Data Systems Inc., with sales of $2.8 billion was sold for $5.1 billion to Florida-based Fidelity Information Services. As a standalone unit, Sungard AS struggled to gain profitability leading to the bankruptcy announcement.

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Indeed the Cloud has significantly changed disaster recovery in multiple ways.

The hyperscale cloud providers like AWS and Microsoft Azure have entered the market as both competitors and partners.

Cloud disaster recovery has changed the way disaster recovery services are delivered adding flexibility and remote working.

We have seen the same thing with the demise of KMart and Sears. Sungard was still reliant on brick-and-mortar DR services.

Let’s see how many Sungard AS customers will continue to invest the DR dollars into a company whose CEO admits they “hadn’t changed in 20 years” and is willing to write off almost a billion dollars.

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Ralph Bach has been in IT long enough to know better and has blogged from his Bach Seat about IT, careers, and anything else that catches his attention since 2005. You can follow him on LinkedIn, Facebook, and Twitter. Email the Bach Seat here.