Edinburgh-based accounting software developer FreeAgent has become part of the Royal Bank of Scotland Group in a deal worth around £53m.
The current holder of AccountingWEB’s top prize for small business accounting software, FreeAgent has built up a loyal base of 50,000+ users among freelance/microbusinesses and their accountants.
FreeAgent listed on AIM at a price of 87p in November 2016. Under the RBS bid, each shareholder will be entitled to receive 120p cash per share, valuing FreeAgent at approximately £53m.
The link-up with RBS is not without precedent. Since the end of 2017, the bank has been offering FreeAgent software to business banking customers for the past few months. According to the deal announcement, more than 10,000 RBS customers have signed up for FreeAgent since then.
FreeAgent CEO Ed Molyneux told AccountingWEB the acquisition grew out of the success of the collaboration and that the developer would continue to operate independently. “We have worked with the bank for past few years – but especially in the last six months, they’ve seen how we can operate at speed and deliver, and that’s what they’re buying into. That’s the bit we need to preserve.”
For FreeAgent, the tie-up with RBS gives it immediate access to one million customers. Under the original tie-up, RBS customers gained access to FreeAgent at no cost. Originally, accountants were charged a £3 monthly fee to access interactive client banking data, but that charge has been dropped.
For RBS, having its own software platform means it will be able to cross-sell additional services and conduct top-level assessments of business performance and risk.
According to Molyneux, the combination of open banking and Making Tax Digital are changing the accounting landscape and it was a natural progression for the software to become part of the bank’s offering. “The lines between banking and accounting will be very blurred – as they’ve been blurring in accounting and tax. Our job will be to deliver an integrated banking/accounting experience. It’s going to be a game-changer,” he said.
There are a lot of different scenarios for FreeAgent customers and accountants to consider. Molyneux said that FreeAgent would continue to offer the same level of support to customers who banked elsewhere and played down the suggestion that there would be a sudden rush of bank account migrations to take advantage of the RBS arrangement.
“The primary thing is simplicity and lack of friction in the accounting and banking experience,” he said. “That’s what we think is driving value overall.”
Molyneux will continue to lead FreeAgent, but with a new board that reflects the ownership change. “The goal is to make sure FreeAgent stays as autonomous as it can be, because it’s trying to preserve what makes us valuable.”
The bank has put in its cash, but Molyneux said most of the staff shareholders at the company are rolling their holdings into the new holding company. “We still a fair amount of skin in the game and are financially committed to the partnership. We’re not going anywhere soon and this gives us a great platform to deliver on our vision.”
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