enhancing the sage Business cloud
There should be little doubt that Sage Group PLC is willing and committed to enhancing its cloud portfolio and positioning itself to compete as a true mid-market ERP provider with its recent acquisition of Intacct for $850 million. So, what’s the significance of the Sage Intacct acquisition and the additional $50 million recently invested to acquire Fairsail which has since been re-branded to Sage People?
Intacct is a proven cloud ERP software provider delivering an integrated financial management and accounting solution to large enterprise and mid-market businesses. Even though Intacct is not natively built on the Salesforce platform, their knowledge of Force.com and their plug and play commitment to integrating to the platform is clear as the company is currently a platinum ISV partner with Salesforce. Intacct’s experience with Force.com aligns perfectly with Stephen Kelly’s, CEO of Sage Group, overall vision and commitment to becoming the clear leader in cloud ERP software for mid-market businesses around the global and strengthening the Sage Business Cloud.
A little over a year ago, in July 2016, I wrote a blog titled “Why Sage Will Acquire Fairsail”, In this blog I indicated that the Salesforce platform would be an attractive and potentially swift path for Sage to the cloud.
“… Kelly needs something sexy to break away from the persona of being an on-premise software license company. The Salesforce platform offers him the accelerant to transition his company and move to a true SaaS/cloud ERP business model and avoid the costs and time to develop his own cloud infrastructure”.
Sage wants to dominate the mid-market ERP software segment and needs Intacct to grow its cloud financial subscription business. This new acquisition will round out Sage’s cloud offerings and provide clients a full spectrum of financials from start-up to small enterprise organizations. The newly branded “Sage Intacct” will target businesses above their Sage One and Sage Live offerings and below Sage X3. The diagram below shows a visual representation of Sage’s market positioning with the typical annual contract value (ACV).
One of the hidden jewels that Sage will gain from the Intacct acquisition, and that will be missed by many of the industry analysts, is the Intacct salesforce. More than half of the mid-market sales representatives from Intacct are former FinancialForce employees who understand the mid-market, cloud financials and HCM (Human Capital Management), which coincidentally aligns nicely with the new Sage People product. This combined knowledge of HR and financial management will be extremely valuable to the existing Sage sales team and surely assist in identifying, introducing and providing competitive advantages of Sage People for any established Intacct customers.
Prior to the Intacct acquisition, the go-to business partner for anything related to HR/Payroll for Intacct would have been referred to ADP. Today, that relationship is unofficially over except for existing opportunities that remain in the sales pipeline. For Sage, and more specifically the Sage People team, the immediate and exclusive access to those 11,000 Intacct customers looking for a comprehensive HCM solution makes Sage People a well-positioned solution.
As with any acquisition, significant change will ensue. And with change comes opportunity. For Sage, the newly attained Intacct customer base and IP (intellectual property) will provide its global sales team and partner eco-system a rich opportunity to sell and cross-sell to mid-market businesses. In this hypercompetitive market, competitors such as NetSuite, FinancialForce, Xero and Abila will be ready to persuade Intacct customers that they have a better mouse-trap. Sage will now need to execute in order to be victorious.
Today, Sage now owns three competitive cloud accounting and one very viable cloud HCM solution. So, what about the missing piece to their cloud ERP? What will Sage do about payroll? And why is finding this last component to their ERP cloud suite even important? Unlike some cloud ERP software companies who see payroll as a commodity and have taken the approach to offer their customers a third-party solution with pre-built integration, Sage has embraced and sold U.S. payroll software and services since it acquired Best Software in 2000. Currently, Sage offers two flavors of payroll outsourcing with Sage Payroll Essentials and Sage Payroll Full Service. These payroll solutions are designed for SMB’s with less than 250 employees and provides customers the ability to choose how they want to process payroll (i.e. in-house or outsourced). However, neither of these payroll offerings address the comprehensive mid-market payroll requirements and are intended to focus on SMB type businesses. The diagram below shows a visual representation of their current payroll offerings.
Considering there is not a single company that has yet to build a native payroll solution on the Force.com platform (there is an estimated 225,000 customers running at least one application on the Salesforce platform), an acquisition is not possible. Which begs the question; will Sage be the first company to build a payroll engine, a payroll application on the Salesforce platform? If they do, it will launch them into the integrated cloud ERP category held only by a limited list of providers (i.e. Oracle NetSuite, Workday, SAP Business One, Microsoft Dynamics and a few others). By the way, the HR, payroll, and people management software industry alone is estimated at $14-billion a year.
Overall, I believe Sage is gaining momentum in the cloud ERP industry by shedding its legacy on-premise applications and building out its cloud solution portfolio. With the Sage Intacct acquisition, Sage can now effectively target mid-market organizations with a viable solution to address the full suite of financial and human resource management needs. And I suspect Sage isn’t done with acquisitions yet as I believe Kimble PSA (Professional Service Automation) will be an acquisition target to help focus on the service economy. This type of acquisition would truly round out Sage’s cloud ERP offering and allow them to provide an end-to-end (accounting, finance, business management, HR, payroll, people management and service automation) cloud ERP solution for any mid-market or large enterprise business.
In summary, Sage very well could be the first provider to build and offer a U.S. payroll solution on the Salesforce platform. And when all of the individual solutions come together for Sage, they will be a formidable mid-market provider to any vendor competing in the cloud ERP space.