ACCC concerned about MYOB Group Ltd and Reckon Limited accountant tie-up

Australian Competition and Consumer Commission (ACCC) is concerned about the MYOB Group Ltd (ASX: MYO) acquisition plan of Reckon Limited’s (ASX: RKN) Accountants Group.

Both MYOB and Reckon provide software for accounting practices to complete tax returns, perform client accounting and also for their own practice operations.

The ACCC outlined several issues about the likely impact of the consolidation. ACCC’s Commissioner, Roger Featherston, said “If MYOB acquired Reckon’s Accountants Group, it would likely be the only supplier of practice software suitable for medium to large accounting firms.”

“If MYOB has a monopoly on this software, it would substantially lessen competition. We think there’s a significant risk for customers that prices will increase and service levels will decrease.”

The ACCC said that the medium to large accounting firms require advanced features from software including flexibility in reporting and workflow, flexibility in matter and customer management, advanced security configurations and the ability to support many concurrent users.

Mr Featherston continued further “The ACCC received feedback from the accounting industry that MYOB’s AE product and Reckon’s APS product are the only products that are capable of meeting the software needs of medium to large accounting firms.

“There are other suppliers of this software but market feedback suggests those products are less sophisticated, and that they are unlikely to be able to develop the more advanced functionality for several years at least.

“We also identified several barriers to expansion for other competitors. These include the time and cost to develop better functionality, switching costs for accounting firms, and a cautious approach from the industry towards changing to untested suppliers.”

I think UK giant Sage would have something to say about the ACCC’s comments. I also find it hard to believe that the industry would dismiss Xero Limited (ASX: XRO) so lightly, as it offers the best functionality in my opinion. As the ACCC commissioner said, a lot of accountants don’t like change.

Foolish takeaway

I still believe that the deal will go through, despite the minor issues that the ACCC has identified. The Reckon share price is down nearly 7% and the MYOB share price is down 0.5% in response to this news.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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