IRIS Software Group has acquired cloud-based bookkeeping software developer KashFlow to create a joint subscriber base of more than 60,000 accounting firms and SMEs across the UK.
IRIS claimed the combined business will lead the market in supplying cloud-based accountancy, payroll and bookkeeping solutions to small businesses and accountants.
KashFlow, which was founded by Duane Jackson in 2006, will benefit from IRIS's nationwide sales, marketing and support teams, and takes its place in the company's growing portfolio alongside IRIS OpenBooks, a rebadged version of KashFlow's competitor FreeAgent in which IRIS holds a 10% stake.
IRIS will continue to provide IRIS OpenBooks to existing customers, but expects KashFlow to provide “even deeper levels of functionality” for accountants and small businesses through integration with KashFlow.
IRIS chief executive Phill Robinson said KashFlow was a “perfect fit” with his existing suite of products and explained to AccountingWEB: “[IRIS OpenBooks] has been a good product, and does well, and we want to continue supporting customers that have chosen it. There’s no concept of that partnership dissolving or going away, or not being supported.”
While IRIS would continue to support OpenBooks, if it was approached by a new prospect looking for a bookkeeping solution, it would sell them KashFlow.
“It’s clear that FreeAgent is good for some things, but we thought that KashFlow was better at many others,” he said. “FreeAgent’s heritage is in supplying a solution that supports contractors and sole traders, but we feel that KashFlow has a broader appeal across the SME marketplace.
IRIS estimates that cloud solutions account for 9% of the UK bookkeeping marketplace, with penetration likely to rise to 25% over the next couple of years. Moving for KashFlow now gives the company the best opportunity to cash in on that growth, Robinson explained.
Jackson said IRIS clearly understood the importance of the cloud and the benefits it can bring to small business owners. “Being part of the wider IRIS Software Group not only gives us direct access to a significant section of the UK accountancy and SME sector but it also makes us part of a wider suite of cloud offerings,” he said.
He added that working with IRIS would be a short cut to get KashFlow to where he wanted it to go. “Rather than going and raising some money and taking the time and risk of converting that cash into tangible results, we can actually leap-frog that whole process and go straight to where we are today with payroll products and 50% of the accountants in the UK. So overnight it’s an absolute no-brainer.”
In his blog Jackson added: “We have access to all the resources I wanted. The game has changed. We can now get on with improving the lives of many, many more business owners. Exciting times!”
Until now KashFlow has lacked a payroll solution, but now it can take advantage of the web-based IRIS OpenPayroll tool launched earlier this month. “The first thing on our list will be integrating into that,” Jackson said.
“But more important for accountants, is the back-end side of things when it comes to things like accounts production and tax calculations. IRIS have got some well respected and heavily-used products there. Now we can do some really serious integration.”
Robinson confirmed IRIS would also look to work with KashFlow’s Orbit product for practitioners.
“The thing that Orbit provides like no other, is the capability to have the accountant log into Orbit and have a single common view of his customers to control and manage from a single solution. It’s really deeply functional and unique,” Robinson said.
Robinson also confirmed that IRIS would retain the KashFlow brand.
"I think that Duane and the team have done a fabulous job of building a really vibrant and successful business over the years, and it would be a real shame to let that go or diminish. The technology that KashFlow has will also make its way to a number of IRIS products as well, but overall we want to maintain a commitment to the KashFlow brand,” he said.
Ed Molyneux, FreeAgent founder and chief, responded in an Any Answers post: “Just to clarify, FreeAgent is and continues to be an independent company and is not owned by IRIS although they are a minority shareholder.”
He further told AccountingWEB: “I think IRIS's acquisition of KashFlow further confirms that the market is tipping towards the SaaS model and it's great news for accounting practice customers (and clients alike) to have two to three serious and capable competitors working hard for their business.
“We're primarily interested in the micro-business end of the market rather than the generic 'small' business which really encompasses up to about 50 employees in size. There's just a world of difference between an independent florist and a 45-person manufacturing company, a difference that we don't even try to span - a fact which our customers really appreciate.”
Since the vast majority of UK businesses are 'micro', FreeAgent was happy to focus on this sector, Molyneux added.
After being frozen out of the practice market by its previous arrangements with IRIS, the company was now free to provide cloud accounting software directly to accounting practices. It has launched a ‘FreeAgent Friendly’ campaign to do just that.
Gary Turner, Xero managing director, echoed Molyneux's sentiments: “Deals like this signal that the market is now consolidating around a small number of cloud vendors that have the ability and resources to operate at scale as the cloud migration gathers pace. However the fact that in doing this deal IRIS appears to have compromised their earlier cloud investment in FreeAgent would suggest this was more opportunistic than it was strategic. Time will tell if their cloud by acquisition strategy is actually viable or not.”
The terms of the transaction have not been disclosed.
What are your thoughts on this deal and the future of the cloud accounting market in the UK?