Sage buys Verus for £184m in cash deal

Sage, the UK’s largest listed software company, on Monday said it would expand its US business beyond accounting products with the acquisition of payment processor Verus Financial Management.

Sage, which sells accounting and back office software and services to small companies, said it had bought Verus, based in Nashville, Tennessee, for £184m ($325m) in cash from privately-owned Financial Technology Ventures.

Sage hopes that Verus’ fast-growing merchant services business, helping 101,000 small enterprises such as restaurants, car dealerships and petrol stations to process and validate card and cheque payments, will complement its existing US payroll services. The acquisition could boost growth in Sage’s North American small business accounting operations, which slowed from 6 per cent in the first quarter of 2005 to 2 per cent in the second.

It could also help Sage fight off competition from Microsoft, which launched a small business accounting software product last September.

“Acquiring Verus expands our business management solutions into a new and growing market, where SMEs (small and medium sized enterprises) are showing clear demand for more automation of their business processes,” said Paul Walker, Sage’s chief executive.

The acquisition is Sage’s largest since it bought US rival Interact in 2001. In a presentation to investors, Sage said the deal would bring new opportunities to sell its existing products to Verus’s customers and would bring Verus’ products to its own customer base.

Toby McCullagh, analyst at Bear Stearns, said the purchase price of 5.1 times sales was above Sage’s normal range but that “given 26 per cent organic growth, 33 per cent margins and complementary strategic fit, the acquisition looks interesting.”

Verus’ operating profit before depreciation and amortisation grew from £4m in 2004 to about £12m in 2005, reflecting strong revenue growth.

Sage said it hoped to make further acquisitions in the US, Europe and Asia, Paul Harrison, finance director, told Reuters.