Sopra Steria announced the planned sale of its Sopra Banking Software (SBS) unit to Axway for an EV of €330m. Sopra Steria will use the cash proceeds to lower its net debt. As part of the deal, it will lower its stake in Axway.
A few thoughts:
● A major strategic shift for Sopra Steria, which had built SBS in the past ten years, both organically and through acquisitions. SBS is exiting a period of heavy transformation (of its service portfolio and also to subscriptions)
● Sopra Steria retains 20% (~€100m in revenues) of SBS, largely services. I assume that Sopra Steria will be SBS's preferred SI partner
● The disposal is not financially-led. Despite a very active 2023 in terms of M&As, Sopra Steria's net debt was under control (€946m). With the sales proceeds and its expected FCF for 2024, I expect Sopra Steria's net debt to reduce by two-thirds
● Axway is a spin-off from Sopra Steria and shares the same main shareholder Sopra GMT (founders, family, and managers). Axway has completed its turn-around and reached a margin of ~20%. It hopes to turn around SBS in the next few years
● Strategically, this is a complete shift for Axway, which was an API and integration middleware specialist. With SBS, it expands to banking applications. I view the transaction as financial engineering for Sopra GMT to have Sopra Steria focused (mostly) on IT services and Axway on software products, implying different business models and valuations.
Sopra Steria achieves further substantial increase in operating performance in financial year 2023.
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