Breaking news just to hand that UK accounting vendor Sage is considering making a bid for Australasian vendor MYOB. Sage has long had a strategy of growth by acquisition and tends to let the acquired company continue to run independently – this has led to some confusion in the past. Case in point being MyBusinessOnline, a product created by SOuth African vendor (and Sage subsidiary) Pastel. When I reviewed the product a couple of years ago I was pretty impressed, and commented that it was a shame that Sage wasn’t looking at the innovative work its far-flung divisions were doing to build a coherent and consistent product catalog.

Anyway, MYON was acquired by private equity firms around three years ago which indicates that the timing is right for a divestiture, a fact that Xero CEO Rod Drury pointed out in a recent post.

Drury went further however to contend that the selling of MYOB indicated a changing of the guard and a stripping out of core assets. he went so far as to claim that;

…thousands of Australasian small business customers are going to be sold to a new business owner. It also potentially marks the end of the old Windows desktop software model in Australasia

I don’t see it that way – the acquisition of MYOB will only occur if potential suitors believe there is an ongoing and lucrative revenue stream apparent in the company. Were this to mark what Drury is calling the beginning of the end of the incumbent players, it would be very unlikely that Sage (one of those dying players in Drury’s mind) would either be in a position to buy, or have the desire to acquire another “legacy vendor”.

The comment from Drury that:

This is the most significant vendor flip the small business accounting space has seen in a generation. In Australia and New Zealand hundreds of billions of GDP are managed through these platforms – and now there is uncertainty on who will own those businesses. Two big customer bases are about to be sold out. Who will be the trusted custodian of these transactions?

also misses the mark in my view. Sage is a publicly listed company with a valuation of $5.5B, it’s a little disingenuous to suggest that the new breed of vendors (of which Xero is arguably the leader with a roughly $200M valuation) will give customers a higher degree of certainty than the incumbents – no matter who owns them at any point in time.

Rather Sage sees MYOB with an incredibly dominant (although admittedly more threatened than previously) position in the marketplace and sees the opportunity to acquire that revenue and invest in building technology to cement that position going forwards. Between the two companies there is roughly seven million customers (6M for Sage, 1M for MYOB) spread across the world – this deal, if it goes through, creates a massive amount of consolidation with (if handled correctly) some great potential technology synergies.

Ben Kepes

Ben Kepes is a technology evangelist, an investor, a commentator and a business adviser. Ben covers the convergence of technology, mobile, ubiquity and agility, all enabled by the Cloud. His areas of interest extend to enterprise software, software integration, financial/accounting software, platforms and infrastructure as well as articulating technology simply for everyday users.

  • Very big news. It’ll be interesting to see what happens!

    It is a bit like an acquisition company buying another acquisition company though and I wonder where it will leave product progression for MYOB. If they don’t improve in that regards Xero will continue to make inroads.

    • Josh, we need to separate product development from business here. Sage would be getting 1M customers and #100M in profit annually – product rodemaps happen at a lower level of the business than that…

      • Their product is their business, it’s not separate!

        That’s the whole problem – sitting on laurels because of big numbers and no competition equals poor product development. I know, I’ve worked in the environment!

        The big legacy numbers are still their but now that there is competition that doesn’t separate business from their product they will start to eat into those numbers.

  • Ben,
    I agree with your comments on Rod Drury’s sweeping statements.Not unexpected from Rod given his incessant crusade against traditional server based application delivery. It’s an interesting situation that may play out in our region, Xero with plenty of bravado and a commitment to producing innovative and a very scalable solution up against Sage PLC potentially the new owners of an impressive customer list but the woefully outdated product. If Sage can bring themselves to inject life into MyBusiness Online it will make for interesting times.They have a long way to catch up with Xero in product development, I think it will be more about their will to do so more than a question of their financial capacity. They don’t have a good track record in commiting serious development dollars into products they acquire and a frustrating lack of integration across their product range.Then you have Intuit, the silent giant, what’s their next move if any? Interesting times ahead I suspect.

  • Nothing new in Rod making loud mouthed sweeping statements. Reaks of ‘short man syndrome’.

    If SAGE do acquire MYOB, an investment of this nature will not provide the ROI without investing further in development.

    Rod is grasping at straws when he says MYOB’s customers are being abandoned. I’d rather have my data stored with a company that is profitable, that with Xero who show no profit at all – and can’t meet targets.

    Rods continuous diatribe is at best becoming tiresome and at worst reducing the credibility he once had as a business genius.

    I predict 2 years out, Xero will still not be making a profit, investors will be getting grumpy (and bored with Rods revised profit forecasts), and Rod will get lost in the SaaS ‘cloud’ somewhere.

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