Brit accountancy software maker Sage is offloading its Brazilian operation to local management.
Sage, which grew to dominate the traditional market for small business accounting software, has entered into an agreement for the sale. “This divestiture is part of Sage's strategy to focus on subscription software solutions that are in or have a pathway to the Sage Business Cloud,” the company said in a canned statement on Monday.
The deal is worth £1m payable on completion, plus “deferred consideration” of up to £9m. The company would not reveal these terms. In July last year, Sage reported a serious drop in software revenue as it attempted to shift its business model to cloud-based subscription services.
As a result, the share price suffered its greatest fall in 16 years. In any case, Sage was always facing an uphill struggle in Brazil, said Anthony Miller, managing partner, at TechMarketView.
"The Brazilian and therefore Latin American ERP market is dominated by local hero Totvs, which is by far the largest indigenous software company in the region, with revenues of just a little over £400m. To be honest, Sage simply didn't have a chance with its patchwork quilt of accounting packages."
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Technology investment research firm Megabuyte said that while Sage could expect to make a £15m loss on the sale, its overall strategy was sound. "Sage's bet on Brazil has not fared well as it exits the market nursing substantial losses. However, notwithstanding this clear destruction of shareholder value, the divestment seems strategically sensible, allowing management to focus on protecting under-attack market share in its core regions of UK, Europe, South Africa and North America and transitioning its solutions set to the Business Cloud," it said.
Founded in 1981, Sage came to dominate the market for on-premise accounting and payroll software in smaller businesses. It still claims that around half of the UK’s employees are paid via Sage software. However, cloud-native software from companies such as Xero, and those built on the Salesforce platform such as FinancialForce, stole the march on Sage in anticipating businesses’ transition to cloud computing. It will be hoping the Brazilian sell-off gives it enough breathing room to catch up. ®