Sage Group unveils cloud acquisition, but growth slows in third quarter

Sage Group reported slowing third quarter trading and guidance for the full year, as it put out a pair of announcements after hours on Tuesday that also included its largest ever acquisition.

The FTSE 100-listed accounting software group said organic revenue increased 6.3% in the third quarter, down from 7% in the second quarter and meaning the top line has grown 6.4% in the first nine months of the year.

Sage will pay £654m ($850m) cash and share options for California-based Intacct, which provides cloud-based financial management systems to a customer base of 'thousands' across North America.

Intacct's software and services are targeted at growing businesses looking for "process automation, seamless integration with their existing software, advanced features and a modern user experience".

Chief executive Stephen Kelly said: "Today we take another major step forward in delivering our strategy and we are thrilled to welcome Intacct into the Sage family.

"The acquisition of Intacct supports our ambitions for accelerating growth by winning new customers at scale and builds on our other cloud-first acquisitions, strengthening the Sage Business Cloud. Intacct opens up huge opportunities in the North American market, representing over half of our total addressable market."

Chief financial officer Steve Hare confirmed the acquisition of Intacct was expected to complete "within weeks".

"In addition to organic revenue we expect Intacct, Sage People (Fairsail) and Compass to add approximately £20m of revenue in this financial year."

For the existing Sage business, including North American Payments, organic revenue increased by 5.6% in the third quarter, down from 6.3% in the second, resulting in 5.7% growth for the nine months of its financial year to 30 June.

Management restated their guidance for the full year of at least 6% organic revenue growth including the contribution from North American Payments through to completion of the disposal and an underlying operating margin of at least 27% that takes account of any investments in Sage Intacct, Sage People and Compass.

Organic recurring revenue for the first nine months grew by 9.3%, down from 9.9% in the first half, driven by software subscription growth of 30.6%.

Software and software related services (SSRS) revenue shrank 5.9% for the first nine months of the year, an improvement on the 7.5% for the first six months, as management continue the migration to subscription as part of the strategy.

"North America is showing encouraging progress, driving growth through X3 and the cloud-enabled versions of the Sage 50 and the Sage 200 family," the company said in a statement.

While France's challenges continued due to a first-year premium being charged in prior years as customers were migrated to subscription, though if France is ignored organic revenue growth over nine months for the remaining business was 7.6% with recurring revenue growth of 11.1%.

"Performance for the year to date continues to be in line with our expectations and we remain confident of building on this performance in Q4, exiting the year with accelerating momentum," said Hare.

Net debt fell to £415m from 434m as at 31 March.