Open Solutions CEO Louis Hernandez late last week told BTN the firm is considering a number of options as it looks to expand its business, one of which is the courting of new investors.
Hernandez responded to press reports that Open Solutions is on the block, saying the firm's earnings are solid and it's considering options to restructure its balance sheet as the Glastonbury, Conn.-based tech firm grows its mix of data processing and other tech tools that it sells to banks and credit unions.
Citing unnamed sources, The Wall Street Journal on Thursday reported the private equity owners of Open Solutions were putting the firm up for sale. The Carlyle Group and Providence Equity Partners took Open Solutions private for $1.3 billion in 2007 in a deal that included debt. Hernandez said that debt was the best way at the time to fund the development of the firm's tech platforms and it now may seek an investor or group of investors to turn that debt into equity. Hernandez said nothing was imminent and plans could change, though he said the firm has an existing a strategy of addressing its debt structure by 2014.
In a joint statement, the Carlyle Group and Providence Equity Partners said, "Open Solutions' strong business performance and pipeline, as demonstrated by their results disclosed on April 5, has generated a lot of interest from investors. The company has the flexibility to determine the best course of action going forward, and we are working with management to review these options." The firms did not comment on reports in the Wall Street Journal that suggested the investment was underperforming and the investors may not make money off of the deal.
The company announced earnings last week, and Hernandez said the firm's bookings increased 12 percent last year, its earnings increased 20 percent, and its cash flow is up about 47 percent.
"If you want to reduce the balance sheet, you can have someone write you a check to pay down [the debt]. If the new investor does that, the percentage of ownership will change, because the new investor will own a piece of the company," Hernandez says, stressing the firm's potential courting of new investment.
Open Solutions carries a B corporate rating from Standard & Poor's, which in January downgraded its outlook to negative from stable, though the rating agency attributed that in part to consolidation in the firm's target market. The tech firm's $325 million in senior subordinated notes carries a CCC+ rating and its first-lien credit facilities rating is rated BB-.
At last week's earnings announcement, Hernandez said the firm's performance had put it in a position to give it the "flexibility to consider a range of strategic initiatives that will further strengthen our capital structure and enable us to continue to successfully drive growth through our global collaborative network and innovative product suite."
"These earnings caused a lot of people to talk about how they can participate in Open Solutions, and we have been evaluating whether these investors can help up pay down the debt and help us grow," Hernandez said on Friday.
Open Solutions products include its DNA enterprise core banking platform. Its DNA Creator and DNAappstore borrows a page from Apple's book by giving developers — including some of its banking and credit union clients — the tools to create, share and sell their own ancillary software modules for DNA. Since its mid-year 2011 launch, banks and credit unions have downloaded more than 500 DNAapps from the DNAappstor, which has logged more than 20,000 unique visits.
For participants in the open development network, the DNAapps have proven to be a venue to develop and share new financial technology free form the higher cost and licensing restrictions of larger tech vendors.
"The DNAapp store creates our own independence and makes us managers of our own domain. It allows us to act upon our priorities," says Harry Gunsallus, senior vice president of technology and operations support for Redstone Federal Credit Union, a Huntsville, Ala. credit union that's developed more than a dozen apps through the Open Solutions system, and has made a number of sales to other DNAappstore participants.
Open Solutions focuses on helping community banks and credit unions compete with their larger bank competitors.
"These institutions don't have the scale to compete, but if all community based banks and credit unions got on the same platform, they could be as efficient as any bank in the world. They could then spend money on the ways that make them unique," Hernandez said on Friday.