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2. Business Combinations
DST has made a number of acquisitions as part of its strategy to increase its product capabilities and expand its presence in the markets it currently serves as well as to adjacent markets. During the three months ended June 30, 2011, DST announced the following:
Finix Business Strategies, LLC and Finix Converge, LLC
On April 29, 2011, DST acquired, through a newly formed subsidiary, DST Brokerage Solutions, LLC, the assets of Finix Business Strategies, LLC (“Finix”), a financial services consulting firm with extensive brokerage and technology expertise. DST Brokerage Solutions also acquired the assets of Finix Converge, LLC (“Converge”), a technology firm that develops and distributes an enterprise social networking and media platform to enable firms to connect and collaborate with their constituents more effectively online. By combining Finix Business Strategies’ extensive knowledge and brokerage expertise with DST’s breadth and depth of technology and services, DST plans to address broker-dealers’ unique challenges through an expanded suite of products and solutions. DST Brokerage Solutions, LLC is part of the Financial Services Segment.
Subserveo Inc.
On June 20, 2011, DST acquired Subserveo Inc. (“Subserveo”), a provider of automated compliance and surveillance solutions to broker-dealers and investment advisors throughout the U.S. and Canada. Subserveo’s solutions perform daily analysis of transactions, orders and account holdings and provide detailed compliance alerts and case management. Subserveo will be operated as part of DST Brokerage Solutions.
Finix, Converge and Subserveo along with DST TASS, the Company’s subsidiary that provides full service subaccounting services, will be operated as a single business unit. This business unit will be DST’s channel to provide products to the broker/dealer market and will manage the distribution of the Company’s AWD, Vision Professional and print/mail products to that market.
Newkirk Products, Inc.
On May 2, 2011, DST acquired the outstanding stock of Newkirk Products, Inc. (“Newkirk”), an industry leader in the development and deployment of communications, education, and investment information for clients in the retirement planning, managed care, and wealth management industries. Newkirk will be operated as a unit of the Output Solutions Segment and its results will be reported in that segment from the date of acquisition. DST believes the acquisition of Newkirk broadens the solution set available to multiple DST business units. Newkirk’s innovative on-demand publishing and marketing solutions complement DST Output’s breadth of transactional and digital fulfillment solutions, making it easier for companies to craft effective customer communications across print, mobile, and electronic channels. It also enables clients of DST Retirement Solutions to access a more fully integrated offering that leverages Newkirk’s capabilities geared to the needs of plan sponsors and participants, including communication and education materials, financial planning tools and plan documents. The acquisition of Newkirk also extends DST Output’s capabilities in the healthcare industry enabling the Company to produce pre-enrollment communications, including information designed to help a participant personalize their health care plan.
The Company has not yet finalized its accounting for the acquired net assets of Finix, Converge, Newkirk and Subserveo; when finalized, it is possible that amounts appearing in the table below of net assets acquired will be adjusted. The Newkirk and Subserveo acquisitions are each subject to customary post-closing working capital adjustments, which could result in an adjustment to the respective purchase price. The Company does not believe that any of the above mentioned business combinations are material to DST’s consolidated financial statements. Notwithstanding, the Company has provided aggregated disclosures of these transactions to assist users of the financial statements in understanding the impact to DST of the business combinations. The following table summarizes the consideration (the Financial Services Segment spent $38.1 million on acquisitions while Output Solutions Segment spent $30.0 million during the six months ended June 30, 2011) and the preliminary allocation of the fair values of the acquisitions during the six months ended June 30, 2011 to the fair values of the assets acquired and liabilities at the respective acquisition dates mentioned above (in millions):
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Consideration |
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Cash paid |
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$ |
68.1 |
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|
|
|
|
|
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Recognized amounts of identifiable assets acquired and liabilities assumed |
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|
|
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Cash and cash equivalents |
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$ |
2.6 |
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Accounts receivable |
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6.0 |
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Other current assets |
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1.2 |
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Properties (includes $16.0 million of proprietary software) |
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26.5 |
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Intangible assets |
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8.0 |
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Goodwill |
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43.4 |
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Other assets |
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0.7 |
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Total assets |
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88.4 |
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|
|
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Other current liabilities |
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4.1 |
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Deferred income tax liabilities |
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9.8 |
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Other liabilities |
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6.4 |
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Total liabilities |
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20.3 |
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Net assets acquired |
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$ |
68.1 |
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Assuming the acquisitions of Finix, Converge, Newkirk, Subserveo and dsicmm Group (as described in the Company’s 2010 Annual Report on Form 10-K) had occurred January 1, 2010, the Company’s total revenues would have been approximately $1,187.3 million and $1,283.1 million for the six months ended June 30, 2011 and 2010, respectively. Consolidated pro forma net income and diluted earnings per share would not have been materially different from the reported amounts for the six months ended June 30, 2011 and 2010. The unaudited pro forma amounts are not indicative of what actual consolidated results of operations might have been if the acquisitions had been effective at the beginning of 2010.
Subsequent to June 30, 2011, the Company announced the following business combinations:
IntelliSource Healthcare Solutions
On July 1, 2011, DST acquired, through its wholly-owned subsidiary, DST Health Solutions, LLC, the assets of IntelliSource Healthcare Solutions (“IntelliSource”), whose principal product is CareConnect which provides an automated care management system. The addition of the IntelliSource suite of solutions broadens DST Health Solutions’ product offering for integrated care management, providing DST Health Solutions’ health plan clients access to an array of valuable solutions — including integrated care management, workflow and analytics — that will enable them to collaboratively facilitate proactive care and optimize resources at all levels of the healthcare system. DST will integrate CareConnect into its proprietary claims offerings.
ALPS Holdings, Inc.
On July 19, 2011, DST entered into a definitive agreement to acquire ALPS Holdings, Inc. (“ALPS”), a provider of a comprehensive suite of asset servicing, asset management, and asset gathering solutions to open-end mutual funds, closed-end funds (“CEFs”), exchange-traded funds (“ETFs”) and alternative investment funds. The acquisition broadens the range of products and services DST will offer to the investment management and brokerage industries in the following areas: 1) ALPS’ comprehensive solution set allows DST to service market segments DST was previously unable to service; 2) ALPS positions DST to service hedge funds and ETFs; and 3) ALPS expands DST’s offerings beyond transfer agency. The transaction, subject to regulatory approval and certain other customary closing conditions, is expected to close in fourth quarter 2011. On a pro-forma basis, the transaction is expected to be accretive to earnings. Upon completion of the transaction, ALPS’s financial results will be consolidated with those of DST, and will be reported as part of DST’s Financial Services Segment. At closing, DST will pay $250.0 million funded from cash and existing credit facilities, subject to customary pre and post closing adjustments.
Lateral Group Limited
On August 5, 2011, DST’s Innovative Output Solutions (“IOS”) subsidiary acquired the outstanding stock of Lateral Group Limited (“Lateral”), a U.K. company engaged in integrated, data driven, multi-channel marketing. The acquisition of Lateral complements the existing IOS business in terms of services offered and business outlook. In addition, this acquisition allows IOS to extend and develop its service/product offerings by further integrating communications through print, data and e-solutions and by providing additional solutions such as data insight and online marketing to the IOS client base. |