How a billion-dollar MYOB deal fell apart

Speculation surfaced last month that Archer Capital was readying itself to offload MYOB to Sage. However, a dramatic back flip saw the accounting software giant sold to Bain Capital. Documents obtained by ZDNet Australia now reveal how a billion-dollar deal fell to pieces at the eleventh hour.

Speculation surfaced last month that Archer Capital was readying itself to offload MYOB to Sage. However, a dramatic back flip saw the accounting software giant sold to Bain Capital. Documents obtained by ZDNet Australia now reveal how a billion-dollar deal fell to pieces at the eleventh hour.

Archer Capital engaged Sage in discussions in July 2011, after several Archer partners had expressed an interest in selling their stake in MYOB. Sage assured Archer Capital in an email on 3 July that "Sage is serious, and the logical buyer [that would] move expeditiously and confidentially".

Less than a month later, Sage provided Archer with an expression of interest, with an indicative offer of $1.35 billion for 100 per cent of the share capital. The indicative offer was dependent on a quick sale, with a final offer expected four weeks after the offer was made.

Sage made a formal offer for MYOB in early August, and asked for a three-week period of exclusivity until due diligence could be completed. Cracks in the negotiation process began to emerge, however, as Archer communicated to Sage shortly afterwards that it wouldn't give Sage an exclusivity period unless the company provided an assurance that it would go through with the acquisition. Archer cited, as its grounds, a failed deal for an Italian-based business-management software group in July, where Sage had pulled out in the final stages of negotiations.

Between 11 August and 15 August, the acquisition process was accelerated after other buyers, including Bain Capital Partners, Kohlberg Kravis Roberts & Co and Hellmann & Friedman, all put in offers.

On 15 August, Sage issued its final offer for MYOB, which specified $1.35 billion for the full share capital, provided, among other provisos, that Sage get access to the "black box" documentation containing MYOB's most confidential business information. Other bidders expressed concern about giving Sage access to such documentation, considering that Sage and MYOB compete for customers, and, if a deal fell through, Sage would have access to MYOB's most classified operations.

Archer accepted the final offer proposed by Sage on 16 August, and sent other bidders away, but after Sage inspected the black box material, Sage proposed to drop its offer by $175 million, sending Archer into a tailspin.

The capital firm saw this as a breach of the sale contract on behalf of Sage, and attempted to get back in contact with other bidders. Only Bain Capital was interested in re-engaging in negotiations with the company, offering $1.045 billion in cash for MYOB.

Archer Capital accepted the Bain Capital deal, and hastily began legal proceedings against Sage for breach of the sale contract, demanding that the failed bidder pay back the difference between the net value of the Bain Capital deal and the $1.35 billion that was dumped.

Arthur Capital and Sage are set to duke it out in court in early December.