Accountancy software vendor Sage Group Plc has a 200m pound ($310m) war chest for acquisitions as it looks to expand it operations in Spain, Italy and Eastern bloc countries and seeks new applications to attack vertical markets in distributions and manufacturing.
The Newcastle, UK-based company denied rumors that it was itself a takeover target for Microsoft Corp, insisting it had held no talks with the Redmond, Washington-based software giant. Its belief that it can continue to win new business and exploit its CRM business leaves it confident that it can meet market expectations that pre-tax income in the current year will rise 13.2% to 153m pounds ($237.2m) on revenue 8.7% higher at 599.6m pounds ($929.4m).
In the year to September 30, net income rose 6.3% to 89m pounds ($137.9m) on revenue up 13.9% at 551.7m pounds ($855.1m).
Such has been the battering of the IT sector that Sage remains the last IT company in the FTSE list of top 100 companies. However, stock market pessimists continue to frown at the company’s prospects, especially since Microsoft moved into Sage’s market with its Great Plains and Navision acquisition.
Sage sees its strength as lying in the fact that 95% of its customer base are companies with fewer than 100 employees, while Microsoft has most of its customers with more than 100 workers. By catching the companies when they first set up, Sage believes that as the established vendor it is in a better position to offer enhanced applications when companies grow. It won 200,000 customers during the year of which 180,000 were at entry level.
Aided by the first full-year contribution from its Interact Commerce acquisition, revenue from its US operation now comprises half its total after showing 10% growth. CRM vendor Interact is crucial to Sage’s future since it needs to squeeze as much revenue from a substantial customer base by offering a wider range of applications.
In its UK home base, which now accounts for 28.3% of revenue, growth was a modest 5% but it is Europe where the greatest potential for growth lies and revenue there rose by 17% to make 21.5% of the total.
Operating at the very bottom of the SME sector has considerable advantages, and 46% of Sage’s revenue now comes from telephone support lines for companies without the resources for their own IT support but who are nonetheless totally dependent on Sage to pay staff and suppliers.
It is not Great Plains that ought to concern Sage but a company like Intuit Inc, which is managing more than 30% growth even in these depressed times. Sage has a vast customer base and steady and reliable revenue but unless it can find some of Intuit’s dynamism it will always be prey to a larger outfit that wants an easy way to increase its customer base.