IRIS Software announced on Tuesday that it had acquired Exchequer Software, one of the UK's leading mid-market accounting software developers, for an undisclosed sum.
IRIS, which began as specialist in integrated tax and practice applications has become increasingly acquisitive since Lloyds invested in the company in 2000. Having bought PAYE-Master and launched IRIS Financials, IRIS attracted further investment from HgCapital last year.
HgCapital said at the time that it saw the potential for both organic growth and "complementary acquisitions". The Exchequer deal falls into that category as IRIS appears to be set on emulating Sage by moving into serious mid-market accounting applications.
To give an idea of the challenge facing IRIS, its turnover combined with Exchequer's will be equivalent to £30m. Sage's revenue for the year to 30 September 2004 was £687.6m.
Within the AccountingWEB community, IRIS has been fighting for leadership of the tax and practice marketplace with Sage. With superior customer satisfaction ratings, IRIS got its nose ahead of its Newcastle-based rival. But with the weight of the 3,000+ Accountants Club and additional applications such as ACT! in its portfolio, Sage emerged as the dominant force in 2004.
IRIS Financials has emerged in the last year or so as one of the challengers to Sage in the entry-level accounting software arena, but like most of the also-rans, it has around a 5% share compared to Sage's 25% share of the market.
Like IRIS, Exchequer has enjoyed good user satisfaction numbers from both IT Zone and ICAEW IT Faculty user surveys. But Exchequer's market footprint is at a significantly higher level than IRIS's. Where three to four years ago, Exchequer had a strong profile among £1m-£10m turnover manufacturing companies, the size rather than number of its users appears to have grown in recent years. This means Exchequer has fulfilled its promise to help its users growth their companies, but its actual presence within the AccountingWEB community has not expanded significantly.
Antoher factor that faces both companies is the need to respond to the growing presence of Microsoft in the accountancy software market. Next year, the Windows developer has indicated it plans to launch a Small Business Accounting package as part of Office and Bill Gates's wider strategy is to create core components to which other developers as specialist features and functions. If they decide to join the Microsoft rather than fight, developers face a major technology transition to Microsoft's .NET architecture. For a developer of Exchequer's size, in particular, and even IRIS, this represents a significant ongoing overhead.
IRIS group chief executive Martin Leuw was not available to discuss the terms of the transaction, nor his acquisition or technical strategy.
IRIS has previously indicated that it plans to migrate its core practice software to Microsoft's .NET architecture. This is an area where Exchequer's technical team has considerable experience.
Exchequer founder Eduardo Loigorri (also current chairman of the software trade body BASDA) will remain with the new organisation, along with co-founder and commercial director Rob Steele. Loigorri commented: "Exchequer Software has always been identified as a benchmark within our industry, adapting quickly to current opportunities in order to maximise the value of our product for users.
"We are very excited at the breadth of experience, service and opportunity we will be able to bring with IRIS to the accounting software market. The combination of IRIS and Exchequer is a strong one and will create an excellent synergy within which our staff, products and customers, both here in the UK and overseas, can continue to thrive."