SS&C Technologies Holdings Inc said on Thursday it will buy DST Systems Inc in a $5.4 billion deal, expanding its financial technology software prowess through its largest deal to date.
SS&C's offer of $84 in cash for each DST share represents a premium of 29 percent to the stock's close on Tuesday, a day before Reuters reported the companies were in advanced talks.
The report sent DST's shares surging nearly 23 percent on Wednesday, while SS&C's closed up 12.8 percent. Both stocks jumped to record highs on Thursday, before easing to trade up about 5 percent each.
The deal is Windsor, Connecticut-based SS&C's latest in its quest to build out its financial software expertise that serves banks and the investment industry. It also gets an entry into the healthcare information technology market.
Morgan Stanley, one of SS&C's financial advisers on the deal, said investors should not be too concerned with DST's lower margins, particularly within financial services.
"SS&C has a long track record of acquiring underperforming businesses, reducing cost, and increasing efficiency to bring performance more closely in line with its average margins," Morgan Stanley analyst Brian Essex said in a client note.
DST is the acquisitive SS&C's first large deal since its $2.3 billion takeover of accounting software maker Advent Software in 2015. A year earlier, SS&C had bought DST's investment data analytics unit for $95 million.
Given that the combined SS&C-DST will get its revenue mainly from the United States, it will also benefit from the recently enacted tax reforms, JP Morgan said, raising its rating on SS&C "overweight."
SS&C said it plans to fund the acquisition and refinance existing debt with a combination of debt and equity. It expects the deal to immediately add to adjusted earnings, before synergies, after closing in the third quarter.
Excluding DST's debt, the transaction is valued at about $5.06 billion, according to Reuters calculations.