Asseco Group Buys Formula Systems, and Therefore Magic Software

September 13, 2010 Timothy Prickett Morgan

In the IBM midrange, it is hard to know who owns whom when it comes to the hardware and software players, and not just because the vast majority of the players in the midrange are privately held. It is sometimes hard to reckon what’s going on with the publicly held ones, too.

So it is with Magic Software Enterprises, which makes application development and integration tools for the IBM i platform and which has just changed hands and now has a new grandparent holding company.

As The Four Hundred has previously explained, Magic Software is owned by Formula Systems, a holding company that itself was acquired by another holding company called Emblaze. The previous grandparent holding company bought Formula Systems in November 2006, and while it is an Israeli company its stock is traded on the London Stock Exchange. Formula has three different parts. Magic Software, Sapiens International (which sells software aimed at insurance companies), and Matrix IT (which is a systems integrator and service provider based in Israel). Emblaze doesn’t own all of the shares in these companies, which are publicly traded, but has controlling stakes in them. Or rather, did.

On September 3, Emblaze announced that it had sold its stakes in Formula Systems (and therefore the three companies, including Magic Software) to Asseco Poland SA, the largest IT provider in Poland, which is traded on the Warsaw Stock Exchange. Emblaze says that Asseco Poland paid $139.1 million in case for the Formula Systems shares owned by Emblaze at a 43 percent premium over the market prices for the three companies on the day the deal was announced. For the first six months of 2010, the Formula Systems companies had $262.6 million in revenues and $25.6 million in earnings before income taxes, depreciation, and amortization. Emblaze says that it will report a capital gain of $35 million on the sale, and that its return on investment, including dividends paid out to Emblaze shareholders, over the past four years came to $67 million.

While this is a good return, getting a 43 percent premium was, Emblaze said, too good of an offer to pass up, particularly with Formula Systems wanting to expand into the rapidly growing Eastern European IT market.

Asseco Poland is actually part of a holding company called Asseco Group. Earlier this year, Asseco Group issued 3.8 million shares of the Asseco Poland subsidiary on the Warsaw Stock Exchange, raising 209 million zlotny (it could be zlotnies, plural, my apologies to our Polish readers), which works out to $67.4 million at current exchange rates between the zlotny and the U.S. dollar. In the first half of 2010, Asseco group posted sales of 1.45 billion zlotny ($468 million), up 2 percent compared to the same period in 2009. Net earnings came to 205 million zlotny ($66.1 million), up 16 percent.

Asseco got its start in creating applications for financial services firms in Poland, and is now the fifth largest software supplier in Europe. You can read a bit more about the company in this profile from the Wall Street Journal.

After the transaction with Emblaze, Asseco Poland has 50.19 percent of Formula Systems’ share capital and 51.18 percent share of votes. Formula Systems itself has a 51.8 percent stake in Magic Software, which is traded on the NASDAQ National Market and Tel Aviv Stock Exchange; the parent company also has a 50.1 percent stake in Matrix IT and a 71.6 percent stake in Sapiens International.

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