Accounting software giant Sage took a huge gamble as it announced Tuesday closing the acquisition of Endeon Practice Services in the US for $565 million cash. That’s an acquisition cost per EPS customer of $25,680. Phew!
In its parent company’s 2005 annual report, EPS disclosed revenues of $304.1 million and earnings of $29.4 million. That’s a miserly 9.6% net.
According to syndicated reports, Sage CEO Paul Walker said it will allow Sage:
…to market its products and services to a substantial new community of small and medium-sized businesses in the US…[to offer] an integrated Sage solution to both new and existing Sage customers in the US, covering accounting, health records and practice management
When you look in detail, Sage is going to have its work cut out.
- EPS appears to be in maintenance mode, having grown its business in FY2005 by 2.7%. The six months to 30th June, 2006 have seen virtually no revenue growth though earnings have risen significantly over the comparable period in 2005 to $22.3 mill or 14.6% of revenues. Way below where Sage likes to be. Assuming that tracks forward for the year then Sage is paying roughly the equivalent of 13 years current profit.
- There is overlap because EPS has billing capability. This means Sage needs to do some re-engineering to make a medical services version of its US products.
Sage has a good record of turning around its acquisitions but I can’t help thinking that on a first pass, this looks like a mighty price to pay for what’s really a slice of market share. The market seems to agree. Oh yes – and even less money for innovation (had to get that in )