The MYOB Group Ltd (ASX: MYO) share price closed 0.3% lower on Friday, after its chance to better private equity firm KKR’s offer of $3.40 per share by 22 February passed without a competing bidder materialising. That currently represents a slight premium to Friday’s close of $3.37.
Following the offer being announced on 8 October 2018, the MYOB share price shot up 19% to close at $3.55. MYOB directors were convinced the offer was in the best interest of shareholders due to an attractive EBITDA multiple (17x FY18) and the near-term investment needed to execute on growth plans.
KKR, which already owns 19.9% of MYOB, will have shareholders vote on the offer in mid to late April. MYOB listed on the Australian Stock Exchange in 1999. If approved by shareholders, MYOB’s transition off the ASX boards will end a 20-year run on the bourse.
The MYOB results for the year ending 31 December 2018 (announced on 21 February 2019) showed:
- Revenue up 7% to $445 million
- EBITDA flat at $190 million
- Net profit after tax up 2% to $104 million
What are the consequences of new MYOB ownership?
Should MYOB shareholders agree to the sale, KKR’s ownership could go in two directions.
Firstly, if KKR invests capital and attention, the business may execute an existing strategy and perhaps beyond. There are several possible value-add synergies in the KKR portfolio, particularly in credit provision (Pepper Group) and digital services (Go Daddy). In addition, MYOB’s ambitions have been domestic rather than global. That could feasibly change with a new perspective from KKR.
Alternatively, private equity’s more ignominious reputation for limited investment and value extraction, could also feasibly play out.
Daylight appearing in a competitive market
In addition to MYOB potentially entering the KKR stable, smaller competitor Reckon has publicly moved away from direct competition with its much larger antagonists. Following falling revenues and citing competition and the disruption caused by a failed MYOB acquisition, Reckon Limited (ASX: RKN) will offer white label solutions and focus on the healthcare vertical.
With both MYOB and Reckon experiencing potentially disrupted focus, Xero Limited (ASX: XRO), the first mover in cloud-based accounting software for small and medium business, would have the opportunity to further execute on its early lead.
If the MYOB acquisition does go ahead, Xero seems to be at least a temporary winner, and maybe a permanent one. If MYOB doesn’t execute on the existing growth strategy under the auspices of KKR, Xero will have a chance to sweep the local region. Alternatively, if Reckon provides a guide, calendar 2019 could be a tough year for MYOB sales even if the long term looks rosier as a result.
2019 could be the year that Xero gains decisively in Australia-New Zealand.