MYOB Group today advised it would no longer pursue the acquisition of Reckon’s Accountant Group, announcing it will continue with a planned investment strategy to drive the accelerated delivery of its ‘Connected Practice’ vision.
In a proposal announced in November 2017, MYOB had intended to acquire three Reckon Accountant Group product lines, with a goal to progressively move customers to cloud solutions.
The acquisition has been the subject of a lengthy regulatory approval process in Australia and New Zealand, and was set to extend beyond the contract expiry date of 31 May 2018. The sale and purchase agreement included conditions, including regulatory conditions, which had to be satisfied prior to completion, failing which either Reckon or MYOB could terminate the contract.
The likelihood of further potential delays in the regulatory process has created uncertainty in the business to be acquired with the potential to impact on its trading, and the parties could not agree to mutually acceptable terms to extend the contract.
MYOB will now redirect its focus towards the delivery of its Connected Practice vision and the development of its online platform for advisers and small and medium enterprises (SMEs), through an accelerated investment strategy. This will see $80M spent over two years, with the goal of bringing together SMEs, advisers and the broader accounting ecosystem through seamless connectivity on a single online platform.
MYOB CEO Tim Reed said, that while the tactical approach is different, the strategy to drive online migration remains unchanged.
“Our goal has always been to invest in our adviser base, recognising the key role that accountants and bookkeepers play in referring our solutions to their SME clients. Over the past seven months, it’s become apparent that the industry is calling out for a seamless and efficient way to move their practices online, and seek out partners who have the plans and capabilities to help with this transition.
“We are focused on driving our business forward by investing in the development of the MYOB online platform, and delivering a unique - and a much-needed - service to the market,” said Mr Reed.
The investment strategy, to be spent over the next two years, includes accelerating A$50 million in R&D investment, to bring forward the delivery of MYOB’s online platform, and an additional A$30 million in Sales and Marketing, to increase the size of the Adviser sales team and optimize the referral opportunity through this adviser base.
During the 2018 – 2020 investment period the business will remain highly profitable, with EBITDA margins expected to remain above 40 per cent. R&D as a percentage of revenue will increase, but be maintained below the 20 per cent level.
With accountants responding positively to the online practice tools MYOB has already brought to market, MYOB CEO Tim Reed said the Board’s decision to invest in the accelerated delivery of the Connected Practice vision was indicative of the long-term benefits of the strategy.
“We are pleased to have the Board’s support to seize this opportunity to move forward on the delivery of our online platform and accelerate the growth of our online solutions across Australia and New Zealand.
“The investment strategy is designed to provide positive long-term rewards for investors, with the business expecting to achieve an EBITDA margin above 45 per cent and free cash flow above A$200 million in 2022,” said Mr. Reed.
With close to a decade in the role of CEO, Mr. Reed said that the next phase of growth is one of the most exciting for MYOB.
“We know that by building the right platform, products and online migration path that we will have a leading and compelling solution for businesses looking to compete in a digital world.
“With the accelerating growth in online subscribers in FY17, we are on track to reach one million online subscribers in Australia and New Zealand by 2020.
“MYOB strongly believes in the Connected Practice vision and the online practice suite in helping accountants and SMEs succeed, and we look forward to seeing great acceleration and progress over the next three years,” Mr Reed said.
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MYOB Group Ltd (ASX: MYO) is a leading provider of online business management solutions. MYOB makes business life easier for approximately 1.2 million businesses across Australia and New Zealand by simplifying accounting, payroll, tax, practice management, CRM, job costing, inventory and more. MYOB operates across three core segments – Clients and Partners (business solutions to SMEs and Advisers); Enterprise Solutions (larger businesses) and Payment Solutions. It provides ongoing support via many client service channels including a network of over 40,000 accountants, bookkeepers and other consultants. MYOB is committed to ongoing innovation and delivering efficiencies and growth opportunities for its growing client base across Australia and New Zealand. For more information, visit http://investors.myob.com.au/Investors or follow @MYOB on Twitter.