Update: MYOB formally withdraws Reckon merger application
MYOB has today formally withdrawn its application to acquire the Accountants Group business of Reckon Limited (Reckon).
The Commerce Commission was scheduled to make a decision on the merger before the agreed date of 21 June 2018.
The Australian Competition and Consumer Commission (ACCC) was undertaking its own assessment of the proposed merger.
MYOB Group yesterday 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 May 31, 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 $80million 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 says 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,” he says.
“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.
The investment strategy, to be spent over the next two years, includes accelerating AU$50 million in R-D investment, to bring forward the delivery of MYOB's online platform, and an additional AU$30 million in Sales and Marketing, to increase the size of the Adviser sales team and optimise the referral opportunity through this adviser base.
During the 2018 – 2020 investment period the business will remain profitable, with EBITDA margins expected to remain above 40%.
R-D as a percentage of revenue will increase, but be maintained below the 20% level.
With accountants responding positively to the online practice tools MYOB has already brought to market, MYOB CEO Tim Reed says 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% and free cash flow above AU$200 million in 2022,” says Reed.
With close to a decade in the role of CEO, Reed says 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,” Reed says.