Scratch that: PE firm Bain outbids Sage for MYOB

Well, I take back everything nice I said about the deal :)

Looks like Bain Capital, former home of US presidential candidate Mitt Romney, made a more compelling offer to Australia-based MYOB than their British colleagues at Sage.

Somewhere in here there is a perfect joke about Mormons, Brits, and their former penal colonies - but your humble blogger will have to get back to you later on that.  For now, let's content ourselves with chewing over yet another collection of banker's notes on the deal:

Archer Capital was advised by UBS and Bain Capital by Morgan Stanley.

Isn't that grand?  Archer, of course, is the PE firm that previously took over MYOB, and is now cashing out.

The Australian has the real scoop, pegging the deal at $1.2 billion:

The deal is a coup for majority MYOB owner Archer Capital, the local private equity firm that led a consortium buyout of the then-listed MYOB (an acronym for Mind Your Own Business) for $450 million in January 2009.  Sage, a British software supplier, had been in exclusive negotiations with the vendor and was offering about $1.3bn.  It is believed Sage's sharp share price drop last week prompted soul-searching on both sides of the deal.

A coup indeed.  Tripling your money in 2.5 years in the middle of a global economic death spiral.  Attention any UBS bankers involved in this deal:  Please contact me immediately if you would like your car washed, lawn mowed, or babies sat.  Zounds.

What will they call it? Sage Zero?

So Reuters is reporting that Sage Group is looking to buy MYOB.  This on the heels of some grumbling in the Sage partner community about the company's move to give all its already-acquired products a number-name.  Stephen Blythe wrote earlier:

I see no value to a Sage brand by dropping already heavily co-branded names like MAS, Accpac, ACT! or Peachtree and replacing them with numbers (50, 100, 200, 300 etc). This will only add significant confusion to existing clients and prospects and add client expectations that Sage has never been able to deliver.

I'm only half-kidding about calling it Sage Zero.  That's working for Coke, right?

According to the Reuters piece, they're valuing MYOB at $1 billion.  With a "b."  Now, if you're reading this from anywhere besides Australia or New Zealand, you might not be thinking about the same MYOB.  Check out the History section of the Wikipedia listing for all the confusing details.

This is kind of a return to form for Sage, which, as the Reuters article notes, has chosen to pay down its debt over the past three years rather than go out and make new deals.  Hear that, Infor?

Because this is such a market-specific buy, it's hard to work up too much snark on this deal, despite the surprising size.  I would imagine Sage is just buying share in AU/NZ, and probably won't try and make all our friends down there buy MAS 500 or whatever.  And despite the involvement of more private-equity goons before, during, and after this transaction, it's still reasonable to think of Sage as primarily a business software company rather than a debt-oozing money-laundering scheme.

But boy, they do have a lot of scraps on their table.

I'd like 50 seats of MANMAN and a Pear & Gorgonzola on whole wheat

Just a quick note that Golden Gate Capital, the financial titans leading the destruction turnaround of Infor and its 80+ acquired legacy ERP products, is now buying California Pizza Kitchen for $470 million.

I'm breathlessly awaiting the corporate synergies here.

Any other offers? Anyone? Anyone?

Well, looks like Infor is going to get Lawson without a fight.  The Lawson board has accepted their takeover offer, which was apparently the only one that ever surfaced, despite all kinds of rumors (and wishes?) to the contrary.  Too bad.

Epicor, Activant ... last one out, please turn off the lights

Zowie.  Sometimes the initial instinct for snark fails, and you just have to sit back and take another look at the industry.

Today, the private equity firm Apax Partners announced they were coming two steps closer to putting your humble blogger out of business - by taking out both Epicor and Activant in one fell swoop.  The combined price tag is said to be about $2 billion.

(h/t to The 451 Group's Brenon Daly, who said "If nothing else, we now know the clearing price for 'vintage' ERP companies."  He noted that the Apax offer for Epicor, and Infor's offer for Lawson are 2.5x and 2.4x trailing twelve months revenues.)

Here's a quick comparison of some notable numbers (from company filings):

	Epicor	Activant
Revenues (TTM)	$440MM	$372MM
Total Debt	$244MM	$497MM

Five years ago, Activant had already been recapitalized by a group of PE funds that were said to "bring a strong track record of helping software businesses achieve their strategic and financial objectives."  Hmm.

The estimable Ray Wang says it's all about scale:  "There is a race to get to $1 billion [in revenue]. At $1 billion, software companies gain economies of scale that allow the right amount of R&D. It's imperative to get to that size to compete and invest."

Gosh, I don't know.  This is a drum that Ray has been beating for some time, but it feels a bit like these companies are fighting the last war.  My own view, to which I've treated readers of this blog for years, is that it's all about cold hard cash, period.  Specifically, the gazillions in private equity dollars that are sitting relatively idle in funds around the world, looking for something better to do than grow moss in the shade.

Talking with IDG's Chris Kanaracus, Ray does acknowledge that point as well:  "Private equity firms focus on squeezing out costs from companies they acquire before selling them at a profit, Wang said."

Well, yes.  And how many times do we have to see this story before customers wise up, and realize that it's all about the a) the fees on the initial deal, and b) what they make on the flip?

I'd be very curious to know what kind of R&D breakthroughs people have seen from, say, Infor (which claims revenues of TWICE the magic $1 billion cited by Ray, but has turned out a succession of integration and middleware failures that would make a real software company blush).

I think Thomas Wailgum is closer to the truth in his blog for the, ahem, SAP User Group, bemoaning the diminishing amount of choice in the ERP world:  "as the overall number of options dwindles and lock-in becomes more evident, just how much 'free choice' will actually exist? It all may be just one big illusion."

Yes.  Yes!  Yes!!!  Does anybody really think that things will improve for Epicor users and partners?  Let alone those of Activant (whose PE recap five years ago followed a spree of mini-Infor style acquisitions in the distribution space).  And how long will it be until this new Epicorivant decides it needs to acquire another mini-Infor like Consona (and, not inconsequentially, provide an exit for its own PE investors)?  How about the Lawson customers, as they wait to see if Oracle will jump in once the price comes down? And does Infor really have a strategy besides someday, somehow, getting to an IPO and paying off their own PE investors with dumb money from the public?  Because unlike Wailgum, Jim Shepherd, and many others, I just don't see SAP or Oracle ever buying them.  Who's going to buy all that PE debt, except for another PE firm?

Wailgum edges up to a sentiment that I've been hearing from dedicated ERP professionals for years:  "This means something."  He's still talking mainly about the acquired companies being household names, not penny-ante little nobodies, but I'd like to expand the point.  This is serious business, this ERP software.  And with every deal that comes down the pike, I get more and more of a feeling that it's just another financial instrument, with knobs and levers to be jiggled by the geniuses at the PE firms.  Package up the recurring revenue from the customer base that is locked in to the old crappy software, run your discounted five-year cash flow models, work in your fees, and come up with a number - like we're securitizing deadbeat mortgages or something.

God help me, I feel like Martin Sheen in the original Wall Street movie (hold the Charlie jokes, please - that's for another blog).  Don't these people make anything?

Brothers and sisters, there is an answer. The choice that Thomas Wailgum is looking for.  The ongoing R&D investment that Ray Wang is looking for.  The way that business management software users of all shapes and sizes can take control of their destiny, and not wait for it to happen to them.  The answer is open source ERP like xTuple, and it is growing and improving and expanding, literally every day.

If you'd like a personal demonstration of what it can do for you, just drop us a line :)

FAQ response, 4/5:  I will update the Graveyard Scorecard after any deal(s) are finalized, including Epicorivant and Lawson.