Why did Sage invest in Fairsail?
In case you missed it, Sage just invested $14.5 million for a 20% stake in Fairsail, a U.K. based global HRMS provider who’s HRIS is built on the Salesforce App Cloud. Why did Sage invest in Fairsail? What’s the significance?
As an attendee at Dreamforce in 2015, I was stunned to learn that Stephen Kelly, the recently appointed CEO of Sage Group, Plc, was up on stage with Marc Benioff, CEO of Salesforce during the opening keynote. I learned that Sage was announcing a new cloud accounting package called “Sage Live”, built on the Salesforce App Cloud and was available for viewing at the conference. Up until this announcement, in front of 120,000+ attendees, I never really heard Sage talk about the cloud. They had always focused on net licensing revenue (NLR), but it appeared that it was all about to change.
To provide some content for why Sage will acquire Fairsail, I’ll go back as far as the acquisition of Best Software in January 2000. A part of Sage’s shopping spree, Sage acquired approximately 16,000 Abra HR/Payroll customers and Best! Imperativ HR/Payroll (aka Abra Enterprise) which was released in 1998 and touted itself as one of the early adopters of leveraging web-native Microsoft technology powered by SQL Server. Note, Sage sold Best! Imperativ (the name changed to Abra Enterprise after Sage acquired it) to Kronos in 2002 which has now become an intricate part of Kronos Workforce Central solution.
Following the sale of Best! Imperativ, the Sage partner community demanded an answer to the aging Abra product line and the strategy ahead. By 2005, HRIS providers Spectrum Human Resource Systems (now Epicor Software) and NuView Systems had emerged as formidable mid-market players offering similar functional and technical capabilities to Best Imperativ!. Without a clear strategy, many frustrated Sage business partners were pressing for answers to the thousands of clients still utilizing Abra and its mature Microsoft FoxPro database. Sage needed to find the next generation solution and eventually decided to leverage an acquired App called ACC-PAC to transition their large installed base of Abra clients to the SQL platform. Today the solution has been re-branded and being sold as Sage HRMS.
The HR tech sector continues to be glowing hot. Not convinced, look no further than a recent quote from Satya Nadella, Microsoft CEO, when he stated to Business Insider’s Matt Rosoff one of the primary reasons for purchasing LinkedIn, a $26 billion acquisition, was to participate in the “Human Capital Management” space. Nadella states “It helps us differentiate our CRM product with social selling. It helps us take Dynamics into new spaces like human capital management with recruiting, and learning, and talent management.”
Sage is fully aware of this red hot market and does not want to be left behind. 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. So Kelly and team has gotten busy by setting the vision and maneuvering the pieces in place:
- May 2015 – Sage forms strategic relationship with Kimble and is the first ISV to integrate to Sage Live.
- June 2015 – Sage partners with Fairsail to provide seamless integration to Sage Live.
- July 2015 – Kimble announces its integration to Sage Live is complete and readily available.
- October 2015 – Fairsail announces its integration to Sage Live.
- May 2016 – Sage invests $14.5 million in Fairsail and will become the HR platform of choice to accompany X3.
- July 2016 – Sage announces the implementation of the Fairsail global HCM solution internally for its 13,000 employees.
Note: Sage X3 is a business management software suite hosted on Amazon Web Services that includes integrated functionality for financial management, sales, customer service, distribution, inventory, and manufacturing, and business intelligence.
Kelly has clearly signaled that Sage will build or partner their next generation Apps on the Salesforce platform. The rumor is Sage even pre-paid Salesforce in advance for licenses in order to get up on stage with Marc Benioff at Dreamforce in 2015. Sage X3, which is not native on the Salesforce platform, will be the flagship ERP App to compete with FinancialForce, NetSuite, Xero and Intacct. Kelly knows that in order to effectively contend with these cloud ERP vendors, who have a significant lead in the market, Sage needs to purchase an HCM App that fits in place with X3 in order to round out the ERP offering. It also looks quite clear to me that Kimble could also be falling in line to get taken down by Sage in the near future. This potential Kimble acquisition would round out Sage’s ERP suite with a feature rich Professional Service Automation (PSA) solution on the Salesforce platform.
For Fairsail, they have prided themselves on being the alternative to Workday, especially for global multi-nationals requiring multi-currency and multi-language capabilities. As most HR professionals are aware, Workday offers extensive HCM capabilities, but at price points that take significant justification by executive leadership. Fairsail’s strategy, at least since the arrival of CEO Adam Hale, has been to compete head-to-head with several of the most prominent HCM providers by building a solution that delivers comparable functionality with superior flexibility and scalability. Much of their success has come from within the U.K. where their influence as a British company has played well with English businesses looking to invest in HR technology. Penetrating the U.S. market has been more elusive as the market place is significantly more competitive.
Once Sage fully acquires Fairsail, Sage will have (5) immediate challenges to overcome:
- Expand or collapse Fairsail’s existing global sales team
- Authorize existing Sage business partners to sell and implement the Fairsail global HRMS
- Establish a business partner certification process to transfer knowledge
- Identify a Sales/Operations executive to manage North America sales and services
- Redefine the customer profile based on Sage’s target market
What is most interesting about the these announcements with Sage, initially with “Sage Live” and then later with “X3”, is that Fairsail will need to make significant changes to how it markets, demonstrates and implements to small and medium size businesses. If the application is designed to offer similar functionality to Workday or SuccessFactors, how do you scale it down for a prospect that is less sophisticated, requires less capabilities and demands faster deployments at lower price points. Fairsail deploys the majority of its implementations internally from the U.K., headed by a former ERP practice director with large consulting firm thinking. The implementation methodology focuses on heavy design, process configuration and project governance which bodes well for complex implementations. Compare that with Sage’s current strategy of delivering a majority of it’s implementation through a network of U.S. based certified business partners, focused on delivering out-of-the-box configuration and rapid deployment. The differences in strategy are stark and will require a significant change to realign and refocus their efforts. If Fairsail is to become the replacement for Sage HRMS, a good deal of work will be involved at all levels of the business.
I also see Sage snuggling-up with Kimble, a PSA solution built natively on the Salesforce platform. This piece will allow Sage to better compete in this growing ERP market against competitors like FinancialForce and NetSuite. Both Fairsail and Kimble are U.K. based companies and should make it much easier to acclimate these two British firms and combine their personnel once acquired. By combining HCM + PSA + Financials as a single offering, Sage will reinvent itself from a mature, NLR, on-premise firm to a true modern sheek cloud company designed for customers in North America and Europe. This will also give Sage time to accelerate development of Sage Live or completely rewrite a financial application native to the Salesforce platform to achieve true interoperability which they will never achieve with X3. The only missing ingredient to the puzzle now is payroll. How is Sage going to fill this gap? What will they offer their U.S. clients, the ones that are still running HR/Payroll on FoxPro or SQL, as a legitimate and proven payroll solution on the Saleforce platform? These clients need this functionality and they need a compelling reason to migrate to the cloud?
XCD, another HCM provider headquartered in the United Kingdom, has announced the early stages of payroll on the Salesforce App Cloud. I presume XCD’s initial phase will be focused exclusively on processing payroll for the U.K., but the possibility of expanding to the U.S. offers great potential. Could this be the missing puzzle piece?
Sage Summit, the annual Sage user conference is underway in Chicago, so maybe we will get a surprise announcement. When will Sage acquire Fairsail? Maybe we will get the answer. I for one am all ears.