Sage to sell U.S. payments business

U.K.-based Sage Group PLC confirmed during a May 3, 2017, earnings call that it will divest its U.S.-based Sage Payment Solutions division. The news follows word in December that a potential sale was under review, all part of a global strategy executed by Sage Chief Executive Officer Stephen Kelly, who took the helm in 2014. According to Sage, over 3 million clients use its integrated accounting, payroll and payment systems.

In a written statement about the sale, Sage said that after a strategic review of payments, its North American payments business is "now classified as an asset held for sale and a discontinued operation." Although growth in Canada remained strong at 9 percent, slower recurring revenue growth in the United States lowered overall growth in its North American segment to 5 percent for the six-month period that just ended.

Its North American business delivers in-store, online and mobile payment solutions, in addition to value-added accounting, gift card and loyalty, analytics and small business loan services. Sage said it plans to continue operating Sage Pay units in the United Kingdom, Ireland and South Africa "as they are delivering integrated solutions core to the strategy."

Focus on core strengths

According to Sage, whose software is used by over half of British businesses, after examining the future direction of its payments divisions, company strategy will focus on cloud-based subscription offerings supportive of its core strengths moving forward.

"Earlier in the year we announced a review of our payments and banking capabilities, which has now made significant progress," Kelly stated. "Today we reconfirm our commitment as a key participant in the global payments and banking services ecosystem, increasing our focus on deeply embedding payments and banking services within our accounting, payroll and people products, to help customers move and manage their money in many more geographies than we do today."

Recent evidence Sage was bolstering its global position came in two key acquisitions: Compass, an automated management report and benchmark provider; and Fairsail, a cloud-based human capital management and people management system provider. Both companies cater to small to midsize businesses, a core client segment for Sage.

"Our updated payments and banking strategy and the acquisition of Fairsail, show our commitment to the golden triangle of accounting, people and payroll, and payments and banking, reinforced by our cloud capabilities," Kelly said. "We are focused on Sage continuing to invest in growth, predominantly through new customer acquisition with cloud-products, and supported by bolt-on acquisitions that accelerate the strategy."

Sell off could spur further acquisitions

With the recent spate of acquisitions in the payments industry fetching large sums, Sage could improve its acquisition prowess as a result of the sale. Mark Dunn, a payments industry expert who in the past has consulted for Sage, believes the financial benefits to Sage could be substantial.

"They've got a big U.S. portfolio that they're selling," Dunn said. "I think it's probably pretty good profits to be had by selling a large portfolio, and if they have other things that they want to focus on, it wouldn't surprise me if that was the way to fund what else they want to do. Given the record multiples that we're seeing for these really large portfolios, like Heartland, that would be what I'd presume they were doing."

While still very much speculative at this point, sources early on told Bloomberg there was buyer interest from EVO Payments International LLC, Global Payments Inc. and Worldpay Group PLC.

Another source anonymously revealed to The Green Sheet that Chicago-based private equity firm GTCR LLC, though unconfirmed, could be in the running to bid on Sage's U.S. business, which has an estimated value of somewhere between $400 million to $600 million. Raymond James Financial Inc. has agreed to advise Sage on the sale.

Editorial Note:

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