UK Software Firm Buys U.S. Payment-Processing Company

Sage Group, a business software firm based in England, on Monday announced the $323 million purchase of Verus Financial Management, the Nashville-based payment processor.

The purchase expands Sage's reach beyond accounting products and into credit card and check processing for small and medium-sized businesses. Sage, which is Britain's largest listed software firm, announced it was buying Verus from Financial Technology Ventures and other shareholders for $323 million in cash, including debt.

“For our existing customers, Verus will provide merchant payment services that can be linked to their existing Sage accounting software,” said Sage Software CEO Ron Verni. “For new customers, these new payment services, in addition to our payroll services and customer relationship management products, further broaden the appeal of Sage solutions beyond pure accounting.”

Finance Director Paul Harrison told Reuters that Sage's existing payroll services operation supports more than 1 million small to medium-sized enterprises, or SMEs, in the U.S. "We've been trialing merchanting services to SMEs for some time and seen there's been quite a strong interest in the U.S.,” he said.

In an interview with AFX News, Harrison said its new payroll services would lift some of the administrative burden off SMEs. Sage's customers have been asking for a way to link payment processing with accounting software in order to eliminate dual data entry, the company said.

Analysts had mixed reactions to the news. Cazenove analysts Stacy Pollard and Sarah McKenna, said in a research note, “We view this as a smart move into a growing market, and one which provides significant cross selling opportunities in both directions.” UBS, on the other hand, said the purchase was “an expensive step out of Sage's core competency.”

Verus has a base of 101,000 customers in industries such as retailers, gas stations, car dealerships and restaurants. Its revenue for 2005 was about $64 million, according to Sage, which represents a growth of 26 percent over the prior year.

George O'Connor, software and computer services analyst at Shore Capital, said, “This is Sage's largest acquisition since 2001 and is about 5.1 times earnings valuation/sales. However, it gives Sage access to a very attractive market and allows them to sell more services to SMEs.”

Harrison also said the company may expand the service to European customers in the future. Sage is looking at additional purchases in countries where it is not a major presence, such as Italy, Scandinavia and in the Middle East, he said.

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