Following yesterday's announcement of a merger between Solution 6 and MYOB, both companies believe the timing is just right, even with the reported AU$70.1 million loss of Solution 6 last year.
Solution 6 yesterday announced its merger with MYOB and the sale of the professional solutions and enterprise businesses to Francisco Partners in San Francisco California. Based on MYOB's three-month volume-weighted average price, Solution 6 will be valued at AU$233 million.
"The accounting and compliance business is doing well and is in great shape compared with a couple of years ago. The timing is right as the market and our customers have indicated to us that it's appropriate to move the global products of enterprise and professional to a US jurisdiction, and in so doing, remove the impost of an expensive corporate office dealing with public company issues," Solution 6 chief executive officer Neil Gamble said.
Gamble said the basis for the merger proposal is to "unlock value for shareholders", which he says has been achieved based on the 37 percent premium on the three-month VWAP.
MYOB chief executive Craig Winkler said "We're proud to have grown in the business and we're very pleased to make sure that the kind of knowledge-based company such as Solution 6 stays in Australia. This is indeed another step in the growth of a good solid Australian business."
Gamble said that the shareholder volume of AU$5 million today proves the very high support the merger is getting from the shareholders and the customers as well. He added that the top ten shareholders have given extremely positive responses on the transaction.
"There are not a lot of software companies in Australia and now two complementary companies have merged with the intention to grow globally and more progressively. It is a rare opportunity to be able to put a mark on international operations," Gamble said.
"MYOB brings to the table considerable synergies with Solution 6's accounting and compliance business, as well as operating in many common countries in Europe and Asia Pacific region, and we believe for that reason a combination with MYOB creates the best outcome for our shareholders," Gamble adds.
Both companies are also confident they will obtain clearances from competition regulators in Australia and New Zealand without hassle.
"The overlap of product revenues between MYOB and Solution 6 within the Accounting and Compliance division is quite small. There's intense competition in this segment and two of our competitors are backed by multi-billion dollar players such as Sage and Intuit, which are considered the whales of this industry. We're confident we'll obtain clearances from the competition regulators in Australia and New Zealand," Gamble said.
The professional and enterprise businesses were sold to a US tech fund mainly because of the geographic location of the clients. More than 90 percent of the clients and potential clients for these products are in the northern hemisphere and most reside in the US.
"Managing these global products from Sydney Australia, from both a time zone and a travel point of view was less than productive and was not helpful to promote our 'staying close to the customer' objective," said Gamble.
Gamble said there will be very minimal management changes after the merger. "These businesses have been structured on a stand-alone basis already and therefore there will be minimal, if any, management changes other than to set up Europe and Asia Pacific administration support. Whilst the new owner will make its own decision, I expect that for these divisions it's business as usual."
Winkler assured that there will be no product changes in the range within the accounting and compliance businesses. He added that "MYOB is supportive and impressed of the product range and the three-year product development roadmap by Solution 6." Gamble believes MYOB will stick to its word.
"The reason MYOB took the initial investment was because of emerging successes of our rejuvenated product line and the back-to-basics customer relationship programs that have been initiated during the past two years. MYOB has endorsed these strategies, roadmaps and products," said Gamble.
The Francisco Partners has been licensed to continue with the Solution 6 brand for a limited period in relation to the professional and enterprise businesses, since it is well known in the northern hemisphere and in the PSA agreement. However, MYOB's brand will overarch the accounting and compliance products.
Winkler said they have received nothing but positive feedback from shareholders and customers regarding the merger.
Two Solution 6 non executive board members will be joining the MYOB board while Solution 6 shareholders will own 33 percent of the combined group. A capital return of up to 20.7 cents to Solution 6 shareholders is part of the merger terms following the sale of the professional and enterprise businesses.