Sage announced today that they’ve completed the sale of their North American Sage Payment Service to GTCR LLC (“GTCR”), a leading private equity firm. The selling price is $260m of which $240m is payable as cash on completion and the remaining $20m as senior preferred equity instrument accruing a pay-in-kind yield. The instrument will be held by Sage until redeemed by SPS or upon onward sale of SPS to a third party.
Sage purchased Verus in 2006 for £174m and later rebranded it as Sage Payment Solutions.
The company initially confirmed they would review their North American payments business in December 2016 but indicated there was no guarantee it would be sold. In January 2017 Sage confirmed they were reviewing the status of their global payments business. In February 2017 Sage updated the investor community with news they had finalized their payments review and that only their North American payments was slated for sale although no buyer had yet been announced.
On Sage’s Q2 2017 earnings call the company CEO said when asked about what the company planned to do with the proceeds from an ultimate sale of payments:
this marketplace is right for consolidation over the next — whether it’s short-term but definitely over the next decade. The reality is now we think we’re match fit and we’re looking to do bolt-on acquisitions that fit the strategy and accelerate the strategy and Fairsail’s a perfect example of that. Compass is another great example around collective intelligence.
So, I think, Charlie, the reality is that we will see M&A be part of the Sage story, but the really important thing you must take away is everything is predicated on organic growth. The engine room is organic growth through Customer for Life and NCA and then anything on the M&A side will be additive to the growth. But the absolute baseline is we’re really committed and we absolutely think the strategy is paying off in terms of driving that organic growth. Steve, do want to cover the other perspective…
Based on the prior comments from Sage it seems likely the proceeds from the payments sale could be used to fuel an additional acquisition so long as it provides for growth.
Sage Press Release:
Disposal of North American Payments business
Sage announces the sale of its North American Payments business to GTCR LLC (“GTCR”), a leading private equity firm.
2 June 2017
The Sage Group plc (“Sage”) today announces that it has reached a definitive agreement to sell its North American Payments business (“Sage Payment Solutions” or “SPS”) a leading provider of bank card processing, ACH, cheque and gift and loyalty card services in North America, to GTCR. The divested business will continue to be an important partner for Sage and a key provider of integrated payment services to Sage customers.
The enterprise valuation for the transaction is $260m (£202m) of which $240m is payable as cash on completion and the remaining $20m as deferred consideration. As a partner to SPS, Sage will continue to receive a revenue share from joint Sage and SPS customers.
The transaction is subject to certain completion conditions and is expected to complete in the next 3 months. Proceeds will be used to reduce net debt and invested in growth.
SPS’s reported revenue for the year ended 30 September 2016 was £130m with operating contribution of £34m.[2,3]
Stephen Kelly, Sage’s CEO commented:
“We recently outlined our updated payments and banking strategy which included exiting areas of the payments market where the strategic fit is not as strong as the rest of the business, whilst continuing to build on our growing network of partnerships within the payments and banking sector. This strategy will allow us to enhance and extend our payments capabilities to all our major geographies, strengthening our golden triangle of accounting, people & payroll and payments & banking.
Today’s announcement to sell the SPS business and partner with the divested business backed by GTCR reinforces this strategy, allowing our North American business builders to continue to access their current payments and banking technology, supported by the renewed investment from GTCR.”
This announcement contains inside information. The person responsible for arranging for the release of this announcement on behalf of Sage is Lauren Wholley.
Sage is the market and technology leader for integrated accounting, payroll and payment systems, supporting the ambition of entrepreneurs and business builders. Today, business builders measure success in strong relationships, partnerships, and communities. It‘s why Sage helps drive today’s business builders with the most intelligent and flexible cloud-enabled software, support and advice to manage everything from money to people. Daily, more than 13,000 Sage colleagues in 23 countries work with a thriving global community of over 3 million entrepreneurs, business owners, tradespeople, accountants, partners and developers to champion the success of business builders everywhere. And as a FTSE 100 business, we are passionate about doing business the right way, supporting our local communities through the Sage Foundation.
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For more information, visit sage.com
Founded in 1980, GTCR is a leading private equity firm focused on investing in growth companies in the Financial Services & Technology, Healthcare, Technology, Media & Telecommunications and Growth Business Services industries. The Chicago-based firm pioneered The Leaders Strategy™ – finding and partnering with management leaders in core domains to identify, acquire and build market-leading companies through transformational acquisitions and organic growth. Since its inception, GTCR has invested more than $12 billion in over 200 companies. For more information, please visit www.gtcr.com.
Raymond James & Associates Inc is acting as Lead Financial Advisor to Sage on this transaction. Sage has also received financial and corporate broking advice from Citigroup Global Markets Limited.
1 Structured as a senior preferred equity instrument accruing a pay-in-kind yield. The instrument will be held by Sage until redeemed by SPS or upon onward sale of SPS to a third party.
2 Operating contribution excludes expenses for HR, IT and certain other functions provided by Sage.
3 The gross assets of SPS at 31 March 2017 were £258m.