Sage North America’s next act: addition by subtraction.
The Irvine-based software maker has already done the subtraction, with three recent deals that trimmed noncore business lines, about 1,700 employees, and 10 offices under a restructuring plan crafted by Chief Executive Pascal Houillon.
Now it’s looking to add to sales and profits with a renewed focus on its core business.
It’s a goal Houillon had in mind since March 2011, when he took the top post for Sage North America. The company, a unit of U.K.-based Sage Group PLC, makes software that streamlines accounting, purchasing, payroll processing and other day-to-day tasks. Rivals include Intuit Inc., Microsoft Corp., Oracle Corp. and SAP AG.
Houillon took charge of an operation that had 23 offices in North America and a corporate policy that let acquisitions operate as individual business entities under the Sage umbrella.
“You can’t manage a company with so many locations,” he said. “Sage had acquired quite a lot of companies, but they didn’t integrate all of these.”
The recent divestitures helped bring the office count down to 13, leaving some 2,300 employees across offices in Irvine, Oregon, Virginia, Georgia, Florida, Pennsylvania, Washington and Canada.
Houillon isn’t through with trimming. He said he intends to cut eight additional offices, with Irvine in line to add employees, as well as Atlanta, Vancouver, Beaverton, Ore., and McClean, Va., expected to survive the cuts.
Next Round
The recent sales cleared the way for the next round of consolidation.
The sale of Sage Nonprofit Solutions brought an exit from the philanthropic sector. Shedding Sage Act! and Sage SalesLogix trimmed offerings in the customer relationship management market.
Menlo Park private equity firm Accel-KKR acquired Sage Nonprofit, headquartered in Austin, Texas, and then backed Englewood, Colo.-based Swiftpage, which acquired the other two Sage units.
The trio of deals, which closed last month, was part of the strategy to refocus on core business lines, Houillon said.
“We sold some business lines we thought were not aligned with the vision,” he said.
It appears Houillon has Sage moving in the right direction, with sales of $325 million in the six months through March, up 4% from the same period a year ago. Gross profits totaled $81 million.
The Irvine operation is the largest part of its parent company, which is traded on the London Stock Exchange and reported sales of $1.12 billion and gross profits of $301.6 million for the six months ended in March.
“All the work we’ve been doing in the last 18 months is paying off,” Houillon said.
Ongoing
The ongoing consolidation is the latest in a string of initiatives Houillon and Sage Group have pushed in order to reallocate resources to growth areas and to strengthen ties with customers.
The recent business line sell-offs follow earlier efforts to streamline operations.
Last year, Houillon consolidated Sage’s 11 business units to three. Sage Small Business rolled up three divisions. Sage Mid Market rolled up four. The other unit, Sage Payments, the payment-processing arm geared toward wholesale merchants and retailers, is the company’s fastest-growing segment and now accounts for about 20% of annual sales.
Other Changes
Other recent changes include centralizing research and development and establishing what the company calls customer experience. Last July, Houillon hired former Yahoo! executive Brad Smith to lead the new division, which focuses on customer support. The outfit has since grown to more than 30 people under Smith, the former vice president of customer experience at Yahoo!, where he was charged with improving online services with customers.
“We,” Houillon said, “can already see a big impact in the way people think” about the brand, a key to his turnaround efforts.
Last year he laid out an aggressive marketing strategy to put all of the company’s products under the Sage name after years of disparate brands.
This year, he’s pushing to simplify software after internal reports showed customers used only about a third of products’ applications.
“We could develop great software, but if our customer doesn’t know how to use it, we don’t maximize the value,” he said. “Instead of looking to add more stuff, we want to be sure our customer gets the most out of our product.”
License-Based Model
The company also recently switched from a licensed-based model with annual contracts allowing multiple users to a subscription model billed on a per-user, per-service basis.
That strategy provides “more flexibility for the customer,” Houillon said, because they can tailor purchases to their needs.
It’s also a better fit for new cloud and mobile device offerings because the customer pays only for what they use. Both of those segments are major areas of investment this year for Sage, which plans to release five mobile products in July.
“If we want to move aggressively to the cloud and mobility,” Houillon said, “we need to allocate resources.”
