Stratus Computer Inc. has struck a definitive agreement to buy a privately held maker of electronic funds transfer software.
The acquired company, Shared Financial Systems Inc., Dallas, makes software for Stratus "fault-tolerant" computers. The software is widely used by financial institutions to process automated teller machine, credit card, and point of sale transactions where 24-hour-a-day availability is needed.
Senior officials of both Shared Financial and Stratus said that Shared Financial could benefit from the deal by gaining access to Stratus' resources.
"There are all sorts of possibilities of leveraging our people and finances to ramp up Shared's growth," said Joseph D'Angelo, Stratus' vice president for corporate strategy.
Management to Be Retained
But, otherwise, the sale should have little impact on users of Shared Financial's software, since Stratus plans to retain Shared Financial's management and to not alter its corporate strategy.
The primary reason for the sale was that the venture capital firms that own Shared Financial wanted to sell out their stakes in order to get a return on their initial investment, said Shared Financial's chief executive, Mike Faherty.
"They wanted liquidity by any route they could get it," Mr. Faherty said.
Mr. Faherty explained that the venture capital firms normally plan to maintain stakes in start-up firms for seven to 12 years before taking the firms public or selling them to another company.
Mr. Faherty said that many of Shared Financial's owners had met their investment deadlines, since the company was founded in 1982.
Stratus has agreed to pay about $15 million in cash for Shared Financial, which had revenues of about $20 million for the fiscal year ended March 31, and employs 185 people.
Mr. D'Angelo said that purchase price represented a multiple of 10 to 20 times Shared Financial's earnings, which he declined to detail. The purchase is slated to close in October.
Stratus reported profits of $57 million on revenues of $486 million last year. Almost all of Stratus' revenues came from computer hardware sales and the closely related sales of operating systems and computer maintenance services.
For Stratus, the purchase marks a significant step toward its publicly announced plan of using cash reserves of $173 million to diversify by buying software and consulting companies in industries that Stratus considers strategic.
Topping the list of industries that Stratus is targeting are financial services and point of sale processing, an area from which Stratus derives 40% of its revenues. That Stratus would kick off its expansion in this market by buying Shared Financial is no surprise, since the two firms have had a close relationship since their inception.
Mr. Faherty said that Shared Financial has been Stratus' largest software partner since the computer company was founded in 1980 and started selling computers in 1982.
And, until last year, Shared Financial's software only ran on Stratus machines.
The list of companies that use both Stratus hardware and Shared Financial software includes MasterCard International, Bank of New York, Citicorp, Fuji Bank, American Express, Banque Nationale de Paris, and Abbey National, said Stratus spokesman David Hayward.
Both Stratus and Shared Financial have also recently embarked on a move toward what technologists call open systems.
For Stratus, this means selling fault-tolerant computers that run on the Unix operating system, a business that in 1992 accounted for 15% of Stratus' revenues.
For Shared Financial, this has meant selling a new version of its transaction software for Unix, which the firm began doing last year.
This move, in turn, has led Shared Financial for the first time to sell software for computers made by manufacturers other than Stratus, namely International Business Machines Corp.; NCR Corp., a unit of American Telephone and Telegraph Co.; and Sequent Computer Corp. of Beaverton, Ore.
But Shared Financial does not make software for computers sold by Stratus' arch-rival Tandem Computer Inc., Mr. Faherty said.
Tandem is also big in the fault-tolerant computer market, and is also Shared Financial's biggest rival, through its ownership of Applied Communications Inc., which makes transaction processing software that runs on Tandem's fault-tolerant computers.
The one exception to the continuance of Shared's management is Mr. Faherty, who said he will leave the firm next year. Mr. Faherty said his departure had been expected since he joined Shared Financial 20 months ago as an interim CEO.