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?