Sage paid £20 million this week for HR and payroll developer KCS to sit alongside Snowdrop in the company’s rapidly expanding HR division.
Like Snowdrop, KCS is a mid-range supplier of integrated HR, payroll and time & attendance software. It has 900 customers in the UK, including well known brand names such as Paul Smith, Reg Vardy and Specsavers. A multiple winner of paymagazine’s ‘payroll provider of the year’ award, KCS also received an honourable mention in the recent Sift Media Business Software Satisfaction Awards.
Figures from the company’s accounts are not available for the year to 30 September 2007, but in the previous year, the company made a profit of £288,000 on a turnover of £6.1 million – a figure that was two and a half-times higher than 2005 results. However, the company’s working capital figures were negative for both years, increasing by 10 per cent to -£1.85 million last year, suggesting that the company may have struggled to keep up with such rapid growth.
KCS chief executive Alan Snell acknowledged as much by mentioning the attraction of being able to “leverage Sage’s resources”. In a statement published on the KCS website he commented: “This is an exciting strategic move for both KCS and Sage, giving us the backing of a leading global supplier of Business software and services, whilst providing Sage with our expertise in the UK mid market for payroll and HR.”
Claiming to fit well with Sage’s existing portfolio, he added: “Both companies are committed to further developing and enhancing the KCS software and services suite… In terms of direct impact on our operations, there will not be a noticeable change. KCS will continue to trade in the same name and in the same way that we always have. Over the coming months and years, I will be working closely with both my KCS colleagues and my new colleagues at Sage in improving and enhancing the solutions and services we can offer to the market.”
Sage’s summer acquisition, Snowdrop, was a little larger than KCS, with a turnover of £7.5 million (up 36 per cent on the previous year) and profits of £965,000 in the year to 31 December 2007. In contrast, Sage’s organic revenue growth is stagnating around 5-7 per cent.
Sage’s regional chief executive for UK and Ireland, Paul Stobart, commented: “HR and payroll is an important and growing sector of the business software market and this acquisition complements perfectly our established HR and payroll offerings including those of recently acquired Snowdrop.”
Comment – John Stokdyk, Technology editor
At the recent Softworld exhibition at the NEC, the stands of HR developers such as KCS, Snowdrop and Select HR were much busier than those of financial software developers, suggesting that this could be the new growth hotspot for hungry software companies like Sage. While commenting that I expected to see a few more finance/HR software mergers and acquisitions, I was thinking in terms of months rather than weeks.
I haven’t got details yet of the specific technologies within the two acquired product families, but have the general impression that as the more established developer, Snowdrop has a larger customer base, in larger organisations, and these customers can slow down the speed at which the company can roll out new technologies. KCS has turned the concept of mixing hosted applications and outsourced services with on-site programs into a brand concept it calls ‘RightSource’ and has expanded into leading edge applications such as e-HR and using workflow software to control personnel and payroll processes.
The big move into HR is reminiscent of Sage’s 1999-2002 acquisition spree when it bought up a bunch of tax and practice software houses. As usual, Sage is committed to maintaining the separate Snowdrop, KCS and Sage 50 HR product families, but if it continues to acquire in this sector it will eventually need to consider rationalising them. From their experiences over the past five years, some accountants would confirm that this can be a long and painful process that will tests users’ loyalty to the Sage brand.
