The Sage Group plc (“Sage”) has agreed to acquire Verus Financial Management, Inc. (“Verus”) from Financial Technology Ventures and its other shareholders, for an enterprise value of approximately £184 million ($325 million), to be paid in cash. Verus is a merchant services business specialising in credit card and cheque processing for small and medium-sized businesses (“SMEs”) based in the US in Nashville, Tennessee. The acquisition is expected to complete within the next month, subject to regulatory approvals.
Verus is a leading provider of merchant services in North America. Merchant services support retail, business to business and e-commerce businesses in processing customer transactions through credit cards, debit cards and cheques. Verus has a customer base of 101,000 small and medium-sized merchants in the US, including speciality retailers, petrol stations, restaurants, property managers and motor dealerships. Verus revenues come from services fees linked to processed sales transactions.
Payment processing services are becoming an increasingly important business process requirement for US SMEs, not only in managing payments to their employees through payroll services, but also in managing transactions with customers through merchant services such as those provided by Verus. The market for merchant services is growing strongly, underpinned by growth in the US retail sector, wider adoption of e-commerce by customers and increased use of credit and debit cards. Verus will form the core of Sages North American Merchant Services Division, complementing Sages existing North American Payroll Services.
Verus has grown rapidly organically, following a series of acquisitions in 2002 and 2003. Revenue for the year ended 31 December 2005 was approximately £36 million* (2004: £29m*), representing growth of approximately 26% on the prior year. Operating profit before depreciation and amortisation was approximately £12 million* (2004: £4m*), having grown strongly during the year as a result of the significant revenue growth and a consistent operating cost base. At 31 December 2005, Verus had gross assets of approximately £14 million*.
Verus services include point of sale transaction processing and customer validity checks. This process includes a validation on each transactions risk so that individual sales can be queried if appearing unusual. To complete each transaction, Verus transfers cash directly from the card- or cheque-issuing bank to the merchants bank. The merchant also receives statements and analysis, which can be used as inputs to accounting software.
Within the Sage customer base, trials have shown a clear demand for linking payment processing services with accounting software, so that dual data entry is eliminated and data quality is ensured. To realise this additional long-term revenue opportunity, Sage will enhance the value of Verus services by integrating them with Sage accounting software.
Paul Walker, Sage Chief Executive, commented, “Acquiring Verus expands our business management solutions into a new and growing market, where SMEs are showing clear demand for more automation of their business processes. For our existing customers, Verus will provide merchant payment services that can be linked to their existing Sage accounting software. For new customers, these new payment services, in addition to our payroll services and customer relationship management products, further broaden the appeal of Sage solutions beyond pure accounting”.
*All financial information calculated on the basis of £1 = $1.77. 2005 figures are unaudited.
Contacts
Paul Walker
CHIEF EXECUTIVE, THE SAGE GROUP
Paul Harrison
FINANCE DIRECTOR, THE SAGE GROUP
Phil Branston
INVESTOR RELATIONS, THE SAGE GROUP
Julie Foster
TULCHAN COMMUNICATIONS
+44 (0) 20 7353 4200
Kirstie Hamilton
TULCHAN COMMUNICATIONS
+44 (0) 20 7353 4200
Karen Gilbert
FTVENTURES
415-229-3000
