Sage enters Brazil with acquisition of Folhamatic Group

Posted: 20th June 2012 08:23

The Sage Group plc ("Sage"), announces it has acquired a controlling interest in Folhamatic Group ("Folhamatic"), a leading provider of accounting, tax and payroll and regulatory content software in Brazil.  The expected total consideration of £125m (R$398m) for 75% of the equity equates to an enterprise value for 100% of the business, including estimated net debt at closing, of £191m (R$608m).
The acquisition of Folhamatic represents an important step in building Sage's presence in key emerging markets, enabling a strategy focused on growth and a disciplined approach to returns.
Folhamatic has a leading market position in a large and growing economy:

 - Brazil, now the sixth largest economy in the world, represents an attractive market for Sage with robust macro-economic fundamentals and a favourable, highly complex tax and regulatory environment

 - The SME market in Brazil is relatively immature with limited business software technology penetration with some 90% of the c.6 million Brazilian SMEs using no business software

 - Folhamatic is a leader in the SME market, with the leading presence in the accounting firm market (an important channel for SMEs), with c.13,000 accounting firms (out of c.78,000 in Brazil) and c.46,000 businesses as client

 - Folhamatic has a subscription based revenue model with over 80% of revenue generated on a recurring basis

The acquisition of Folhamatic is highly complementary to Sage's strategy and business model:

 - High growth business with underlying revenues in the twelve months to 31 December 2011 of £42.4m (R$135.4m) growing at over 13%

 - Integrated software and content offering, providing competitive advantage and potential for significant cross-sell opportunities

 - Scope to combine Sage technologies, products and best practice with Folhamatic customer base and customer solutions to drive further growth

 - The transaction achieves control for Sage while retaining and incentivising key Folhamatic personnel - the remaining 25% of equity will be retained by Mauricio Frizzarin, the founder and CEO of Folhamatic and is subject to a put and call arrangement exercisable during 2015

The transaction is consistent with Sage's M&A strategy:

 - Acquiring a market leader in new high growth geography, focused on core SME accounting customers

 - Folhamatic is valued at 13.4x projected 2012 EBITDA

 - The transaction is immediately earnings accretive. Return on capital is expected to meet Sage's risk-adjusted hurdle rate in the third year post acquisition

Sage reiterates its commitment to an efficient balance sheet structure as set out at its interim results presentation on 9 May 2012. To this end, the ongoing share buyback programme will continue following the acquisition of Folhamatic.

Commenting on the acquisition, Guy Berruyer, CEO of Sage, said:

"We are delighted to announce the acquisition of a controlling interest in Folhamatic. It provides us with a market leading position in the large and rapidly growing Brazilian market. We are excited about the growth opportunity that the combination of Sage and Folhamatic creates in this market.

Folhamatic is an outstanding business, with strong management, and we are delighted to welcome the management and staff to the Group. We are particularly pleased that Mauricio Frizzarin will continue to run the Folhamatic business, which builds on our track record of retaining the top entrepreneurial talent of businesses we acquire to drive value for our shareholders."

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