Sage to buy Intacct for £654m

Sage CEO Stephen Kelly
Stephen Kelly_Sage CEO_AccountingWEB
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Sage has lodged a £654m ($850m) bid to acquire US enterprise accounting cloud developer Intacct.

The deal is expected to close within weeks, the company said, and will be funded by Sage share options and cash released from Sage’s ongoing cost saving initiatives. When it completes, Intacct and its retained management team will operate within the wider group under the brand Sage Intacct.

The deal is the latest in a series of shopping expeditions after a quiet period during which CEO Stephen Kelly (pictured above) has been refashioning internal priorities and defining a new agenda for Sage. Having realigned Sage as a “leaner, more global organisation”, Kelly has reverted to Sage’s longstanding tradition of fuelling growth by buying developers where it believes it can increase revenues from established user communities.

During the current financial year, Sage has concluded “bolt-on” acquisitions including the HR developer Fairsail (now Sage People) and analytics company Compass. With a projected annual recurring revenue rate of £74m ($96m) Sage is expecting Intacct to supplement the other acquisitions to add a combined total of £20m in revenue this financial year (ending on 30 September).

In the 12 months to June 2017, Intacct reported revenues of £68m ($88m), with a reported loss of around £17m. The multiples being quoted for the deal are approaching double figures and Sage is paying nearly £60,000 each for Intacct’s 11,000 customers. What is it that makes Intacct so valuable?

According to Sage, Intacct is a “born in the cloud” enterprise resource planning (ERP) system that fits between Sage Live and Sage X3 in the company’s product portfolio. Intacct has been particularly successful in north America by catering for “scale-up” businesses with 10-2,000 employees and will add around 11,000 users to Sage’s global customer numbers.

Intacct includes industry-specific modules for wholesale, healthcare, hospitality, services, not for profit entities and franchises among others, along with add-ons for stock, subscriptions, project accounting, multi-entity consolidation and so on.

As a cloud tool, Intacct has an API strategy that opens up access to a marketplace of 200 add-on applications including Salesforce (CRM), Avalara (sales tax), Adaptive Insights (planning etc), ADP (payroll). The system is sold directly to customers and through reseller channels and accountants. In the USA, Intacct is the preferred supplier at CPA.com, an online software portal founded by the American Institute of Certified Public Accountants (AICPA).

The rationale set out in Sage’s announcement pack explained that the Intacct deal “demonstrates Sage’s commitment to accelerating its cloud-first strategy and winning in the US” and “strengthens Sage’s position as a leading cloud provider from start-up to global enterprise”.

Responding to AccountingWEB’s queries, Sage UK and Ireland managing direct Alan Laing commented, “At the moment, Sage’s focus with the Intacct acquisition is on the platform for growth in North America… Intacct opens up huge opportunities in the North American market, representing over half of our total addressable market.”

That formula of grafting the acquisition onto Sage existing product portfolio, brand, resources and partners still holds true, and will put Sage “in prime position to establish itself as the leading provider” of cloud solutions in its North American target markets.

For Sage in the UK and Ireland, Laing continued, the Intacct deal “underlines Sage's commitment to the midmarket and enterprise segments we currently serve with X3 and Sage People and which we're looking to continue to grow”.

While America is the immediate focus for Sage, the company was already planning to take its midmarket and enterprise offerings international “in the medium term”, he added.

It’s an ambitious and potentially positive move for Sage. But reverting to old habits also recalls many of the questions that previous intitiatives such as the great Accountants Division sweepstake at the turn of the century raised – for example, how will Sage effectively manage and promote so many overlapping products at once? And where will it prioritise its development efforts?

The roadmap for practice-facing tools, for example, looks great on a big presentation slide – but is taking a long time to reach accountants. Will these efforts fall further back in the queue now that Sage has a new £650m baby to absorb into the group?

About John Stokdyk

John Stokdyk is the global editor of AccountingWEB UK and AccountingWEB.com.

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26th Jul 2017 16:57

The buzz reaching us from across the Atlantic is pretty positive for Sage. Having a mid-market cloud ERP product in its portfolio will differentiate Sage from QuickBooks and Xero in North America - and fulfil Kelly's promise to serve start-up, scale-up and enterprise organisations with suitable accounting products.

Sage also inherits a strong network of Intacct partners - including some of the biggest accounting firms in America.

Geni Whitehouse, who used to be an executive at Sage North America, emailed from California, "I think it's a huge plus for Sage and an opportunity to really own the US mid-market space.

As well as existing ties between Sage and Intacct executives, "Many of the Intacct partners are also Sage partners," she said. "This acquisition adds additional cloud expertise and Salesforce knowledge they can leverage. It's a really exciting time for both companies."

Just to balance that view, the same partner rejection risk applies in North America as the UK: some accountants and business partners will have made their choices previously to opt for Sage's existing products, and may not want the additional burden of supporting a new one. And over there, non-Sage Intacct partners will need to adapt to the new culture.

Thanks (1)
to John Stokdyk
27th Jul 2017 10:13

Thanks John,

Your comments about overlapping products is a really interesting one - there does seem to be a fair bit of overlap already.

Do Sage see themselves as more mid-market in the US fullstop?

Thanks (0)
27th Jul 2017 12:28

Of course there is the downside for all the existing Intacct partners that the new owners will put up the price, rebrand and develop for their own platforms leaving none Sage enthusiasts out of the picture. When they took over Hartley in the 1990's their arrogance and smugness along with a changed development plan left this non Sage user feeling left out and looking for an alternative offering; which was a great shame as Hartley had been a great product.

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avatar
27th Jul 2017 12:51

Extract above
'The deal is expected to close within weeks, the company said, and will be funded by Sage share options and cash released from Sage’s ongoing cost saving initiatives'.

Sounds like me Sage cannot afford the acquisition, however Sage must have come to the conclusion its a purchase they have to make, though it will drive a coach and horses through the ongoing cost saving initiatives.

Thanks (1)