Monthly Archives: December 2006

Assessing SunGard’s Chinese Acquisition

Wayne, Pa.-based SunGard Data Systems announced today its acquisition of Shanghai-based Shanghai Fudan Kingstar Computer Co. for undisclosed financial considerations.

The acquisition serves to bring SunGard, which has more than $4 billion in annual revenue and has purchased more than 150 companies in its 20-year history, an beachhead in China’s financial-services software market. Among the products that Kingstar, as the acquired company is called, offers are trading and information systems for China’s major bond market and gold markets.

That would seem to indicate this was a good acquisitive move for SunGard, bought last year by a group of private equity firms for $11.3 billion. What’s more, as financial regulations in China are eased, SunGard should be in an auspicious position to provide modified versions of the financial and trading products it provides in the US market.

Two salient questions remain, however. First, how much did SunGard pay for the acquisition of Kingstar and what assumptions did it make in assessing the valuation? Second, what assurances does SunGard have that Chinese government agencies will not favor indigenous vendors over foreign players or those now owned by foreign companies?

I don’t think US companies fully understand the cultural, economic, and political terrain in China. Many still make assumptions that the rules that apply in North America and Europe are or will be applicable in China. I don’t necessarily agree with that assumption, and I think the Chinese government’s policies and stratagems need to be carefully weighed by any foreign company assuming that it can simply buy its way into markets and technologies that the Chinese government might consider sensitive.

What we might find, as in so many other matters relating to China’s relationships with Western technology companies, is that China is willing to countenance foreign involvement initially. Later, though, as the technologies are coopted and Chinese companies gain a greater understanding of how they work, domestic firms will be favored in contract negotiations.