They should declare it a public holiday in Newcastle. There should be dancing in the streets. Banners should be unfurled. Deep joy.
It’s taken just over five years, but Sage has finally admitted what every sane person knew from day one. It should never have got into the US healthcare market. Today’s announcement that Sage is to sell its US healthcare division – the erstwhile Emdeon Practice Services – to US private equity firm Vista Equity Partners for $320m (£205m) should finally close the book on one what must rank as one of the most misguided acquisitions in the entire history of the UK software industry.
Sage acquired EPS in August 2006 for $565m cash (then some £300m). I was working ‘on the dark side’ as an equities analyst at the time and wrote scathing (moi?) notes on why this was just totally the wrong acquisition for all sorts of reasons: (1) This was not Sage’s ‘knitting’ i.e. accountancy and related products. (2) Sage had absolutely no experience in the US healthcare market – surely one of the most fickle on the planet. (3) Sage became dependent on a third-party to deliver a sizable chunk of revenues from its new healthcare business. (4) EPS was not a reseller-driven operation – which is what the Sage business model is all about. And there was much, much more.
When Sage acquired EPS, its revenues were around $300m but was running sub-10% margins (vs Sage’s mid-20’s). At half-time this year (6 months to 31st March 2011), the now Sage Healthcare division turned over £72m (5% organic decline) at a 14% margin (Sage still mid-20’s). And Lord knows how much extra dosh they funnelled into this ‘American patient’ to try to maintain a pulse.
A very painful ‘knitting lesson’ indeed for all concerned.