Sage offloading assets, now what?

sage logo smallAt the end of last week, news emerged that Sage Americas, France and Spain are offloading what it describes as ‘non-core’ assets. Here are the transaction details taken from the company’s investor site:

In North America, Sage has reached definitive agreement to sell the trade and assets of Sage ACT! and Sage SalesLogix, the two international CRM products identified as non-core, to Swiftpage, and the trade and assets of Sage Nonprofit Solutions, Sage’s vertical software solutions for not-for-profit organisations, to Accel-KKR. The consideration is $101.2m (£64.8m*) in aggregate, of which $91.2m (£58.4m*) is payable in cash on completion. In addition, Sage is receiving a $3m (£1.9m*) seller note from Swiftpage and $7m (£4.5m*) in the form of a 16.1% equity stake in Swiftpage^. As at 30 September 2012, the related gross assets were £243.1m* and EBITA for the year ended 30 September 2012 was £4.8m#.

In Europe, Sage has received a binding offer from Argos Soditic for the sale of C&I, ATL and Automotive in France and Aytos in Spain. The sale requires prior approval from the French Works Council in accordance with French law. The agreed consideration is €33.2m (£28.6m*) of which €27.2m (£23.4m*) is payable in cash on completion.

Alex Williams at TechCrunch cited some of my past analysis on this topic saying:

I rarely hear about Sage. It’s a company that has grown through acquisition over the past 20 years and profited handsomely. That is until about five years ago when, as Dennis Howlett analyzed last summer, the company became a bit too content to belly up to the table and dine on those fat maintenance fees it collected for the aging software.

Those who have read AccMan will know that I have been highly critical of Sage’s strategy, arguing that they have let many opportunities slip past them. In some cases, the misses have been almost comical. In September 2011, Sage dumped Emdeon, its acquired US healthcare division at a loss of $245 million or 43 percent. This latest set of disposals represent an even bigger hit on the carrying value. What are the takeaways?

Seven points to consider

  1. Sage says that it is returning the proceeds of sale to investors. This is a sure sign that Sage has currently given up on investment in new technologies. Financial analysts will now be looking more closely at the return Sage is achieving on the remaining assets to identify other ‘non-core’ activities that can yield shareholder value.
  2. The sales in France and Spain are not surprising. Both economies have faced tough times and the returns must be dismal. Better to dispose while there is a market to dispose to.
  3. Disposing of ACT! and SalesLogix has a certain logic (sic.) Both are very old products albeit they have been well loved over the years. Partners will be alarmed as they often saw these solutions as a way of developing incremental revenue from the installed base. That work will not go away but customers will want to know about the future direction. Simply pointing them to Sage CRM won’t be enough when there are a number of good cloud alternatives.
  4. It’s not all bad news for Sage. Its payment processing division is doing well. However, this is pretty much the only bright spot the company can hold up as a revenue generator.
  5. Sage recently achieved full HMRC accreditation for its SageOne payroll as a Real Time Information (RTI) solution. That will give it some additional credibility where the shift to online has pretty much destroyed its print business and at a time when RTI is a top of mind topic.
  6. The main concern has to be around Sage’s shift to cloud. BillingBoss was a great start but got dumped at the end of last year. That was a mistake because billing is one of the most difficult functions to get right. Having a solution in play provided opportunities to think about developing the solution for the subscription economy. That opportunity is now lost.
  7. SageOne has been a slow burn. Last year it grew from 1,000 to some 6,000 customers. We don’t know if those are paying customers, but others are adding those sort of numbers in a matter of weeks, not a year. The good news is the company has opened up SageOne to developers. That might provide a fillip provided developers find the API friendly enough for their purposes and can see enough of a market to make the integrations worthwhile. In the meantime, potential customers have plenty of other choices.

Concluding thoughts

One should never write off a company the size of Sage. Its cash generating ability has not been significantly diminished and that still leaves open the door for sizeable acquisitions – should it so choose. Contrary to what many think, a cloud acquisition makes sense but it would have to be at a huge premium and even then Sage would have to find a good way of handcuffing acquired management. That’s hard when the potential targets are in hyper growth mode and enjoying good relationships with customers – something with which Sage struggles.

Sage’s biggest difficulty comes in the dichotomy it faces when on the one hand facing the financial community, while on the other hand having to satisfy changing customer demands.

There remains a huge, untapped market for startup and very small businesses (VSBs) that Sage could address. That whole market is going online from the get go. Programs run by the likes of Barclays, which bundles FreeAgent and other services are providing Sage’s competition with routes to market that are a near guarantee of bulking up. Others have driven a wedge between Sage and its captive accounting professional markets. And while Sage might think that its market muscle helps it, the reverse is the case. Like others with a history of incumbency, its past reputation for producing flawed bloatware and forced upgrades leaves it coming from behind. That’s not to say Sage will not overshadow its competitors but the company just doesn’t command enough attention in the market for that to seem likely any time soon.

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