Original URL: https://www.theregister.com/2004/05/13/sage_acquisitions/

Sage: more acquisitions ahead

Must buy to maintain growth

By Datamonitor

Posted in On-Prem, 13th May 2004 10:44 GMT

While Sage's H1 results seem strong, if the three acquisitions it has made since last September are stripped out, organic revenue growth was only three per cent. Flat results from existing operations in its North American business should be a particular concern.

As well as a decline in the value of the dollar, Sage also suffered from late delivery of an upgrade to its SalesLogix CRM software. This resulted in a decline in revenue, although now it is out on the market, sales have begun to recover.

However, Sage's largely SME (small and medium-sized businesses) customer base looks to the company for IT support rather more than software upgrades. On a constant currency basis, services revenue increased 29 per cent to £207.8m and now accounts for 62 per cent of revenue.

On the same basis, software revenue rose by a less impressive 15 per cent to £124.7m, representing 38 per cent of group revenue. This has always been the strength of Sage's business model. It sells applications for modest sums and, because its customers lack the IT infrastructure of larger companies, then offers a services contract which provides an ongoing revenue stream. Sage needs to buy to keep on growing. Four acquisitions over the past eight months have added 903,000 customers. With £116.5m it is not short of resources. Finance director Paul Harrison said the balance sheet could easily take on a further £350m of debt.

"It wouldn't be a surprise if in the next six months or year, we did some more acquisitions to strengthen either an industry specific area, or move into new geographic markets," said chief executive Paul Walker.

The company invests 27 per cent of software revenue in product development and it is focusing on developing industry-specific products for vertical sectors where it has large numbers of customers such as manufacturing, construction and real estate, not-for-profit, and professional accountants.

Sage may need to pay particular attention to its North American operations where, but for its acquisitions, revenue was virtually flat at £136.3m. The company has not been able to match the dynamism of competitor Intuit and there is always the danger that Microsoft might be able to turn Great Plains into a formidable operator.

Source: ComputerWire/Datamonitor

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