Home research company British software provider Sage Group’s appetite for mergers and acquisitions is growing

British software provider Sage Group’s appetite for mergers and acquisitions is growing

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UK-based software provider The Sage Group PLC has ramped up its M&A activity over the past 20 months, outpacing its peers in the number of completed deals.

Sage, which sells payroll, accounting and enterprise resource planning, or ERP, solutions to small and medium-sized businesses, completed its acquisition of Lockstep Network Inc. in late August. In total, the company has announced five transactions since the start of 2021, including the acquisition of Brightpearl Ltd., a retail ERP software company, for $299 million in January.

Sage peers have been less active in mergers and acquisitions recently. Intuit Inc., which has closed 30 deals over the past decade, has closed no deals so far this year. Advanced Computer Software Group Ltd., which is owned by private equity firm Vista Equity Partners Management LLC, announced two acquisitions in 2022, but none in 2021.

The number of deals announced in 2022 by ERP software vendors globally is on track to reach or surpass recent highs, although the size of announced deals is shrinking.

In the first eight months of 2022, industry acquirers announced 440 deals, compared to 471 in all of 2021, according to data from 451 Research. The average deal in 2021 was valued at $771 million, nearly three times more than the average deal announced this year to date.

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Historically, Sage has taken a conservative approach to spending, prioritizing profitability over growth. By comparison, Sage’s competitors have invested heavily in research and development and acquisitions.

Sage’s share price has remained fairly stable over the past five years, while competitors Intuit and Xero Ltd. gained more than 200%.

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Xero, which has seen the strongest share price growth among its peers, has also been the biggest R&D spender, allocating between 23% and 32% of revenue to R&D in the five years to 2021. .

Sage seems to be changing its strategy to follow a similar playbook. The company gradually increased its R&D spending from $244 million in 2017 to $407 million in 2021 as it transitioned to a cloud subscription model. Still, Sage’s ratio of R&D expenditure to revenue remains low compared to its peers, at 16.1% versus 31.4% for Xero.

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451 Research is part of S&P Global Market Intelligence.