After a six-year bull market, you'd expect companies in the investment realm to have reaped the rewards of solid gains in stocks. That's true of many investment-management firms in the business, and it has also had a collateral positive impact on Advent Software (UNKNOWN:ADVS.DL), which makes software platforms to help its manager-clients automate their internal operations and communicate better with their customers. Coming into Monday afternoon's fourth-quarter financial report, longtime shareholders had gotten used to the steady, reliable growth that Advent has enjoyed recently. Yet with rumors now confirmed that rival SS&C Technologies Holdings (NASDAQ:SSNC) will buy Advent, some investors will be disappointed that they won't get to enjoy further potential gains from their holdings. Let's take a look at Advent Software's fourth-quarter results and the details of the buyout.
How Advent ended a solid 2014
Advent Software's fourth-quarter results gave shareholders just about exactly what they had expected to see. Revenue climbed 3% to $100.7 million for the quarter, and on an adjusted basis, earnings per share matched consensus expectations of $0.36 per share. For the full year, Advent closed 2014 with annual gains of 4% in sales and 9% on adjusted earnings per share.
Looking at the details within Advent Software's financials tell just how strong a success story the company has enjoyed recently. Recurring run rates jumped 7% to $383.4 million on an annualized basis, with new bookings equating to an additional $10.1 million in annual revenue, a 15% faster pace than in the fourth quarter of 2013. For the full year, Advent improved on its already near-perfect renewal rate among customers, with 2014 coming in up nearly a full percentage point to 98%. Gross margins climbed slightly, but operating margins showed substantial improvement of 1.4 percentage points, helping to lift adjusted operating income by 8%.
Beyond the financials, Advent celebrated a year in which it saw substantial upgrades to several of its key products. In particular, key updates to its Advent Portfolio Exchange integration software, its Geneva global portfolio-management tool, and its Moxy platform for trading, order management, and automated portfolio construction, Advent has kept the bulk of its customers happy. At the same time, improvements to its Black Diamond tools will keep independent advisors and wealth managers in the loop with improved functionality as well.
What's ahead for Advent Software?
The buyout bid from SS&C is a $2.7 billion cash deal, which will pay Advent shareholders $44.25 per share. That's about 7% higher than the stock's closing price Monday before the announcement, but Advent had already soared 36% in January as rumors of a potential deal became more widespread. With SS&C expecting the deal to close in the second quarter, Advent shareholders will probably get one more chance to see how the company does as an independent entity.
CEO Pete Hess praised the buyout. Hess noted, "I see the combination of Advent and SS&C as a powerful team that can take a big leap forward in the value proposition we offer the industry." He further pointed out that Advent will remain its own entity under the SS&C umbrella, giving its customers the reassurance that they'll keep getting the high-quality customer service that they've come to expect.
For investors, though, the buyout will be bittersweet. In the past, Advent Software did a good job of persuading activist investors that the prospects for quick riches weren't its high priority. Texas-based private equity firm TPG Capital bought a 15% stake in the company almost two years ago from major shareholder SPO Advisory, when Advent was considering an outright sale. Yet SPO Advisory left the picture shortly thereafter, and over the past six months, TPG has exited its position. That left founder Stephanie DiMarco in a better position to determine the fate of the company, especially given her own sizable 5% stake in Advent.
In the end, assuming the deal gets approved, investors will have to be satisfied with the stellar returns that have produced returns of more than 130% over the past two years and an annualized 30% average return in the six years since the financial crisis. That's an impressive feat for any company, but Advent Software might well just leave investors wishing they could have squeezed a little more from their investment.