Sage ups mid-range with buyout of Tetra

Industry queries vendor's wisdom in light of past mistakes.

Sage spent nearly #90 million last week following its acquisition of accountancy software vendor Tetra for #78 million, which came just six days after its purchase of Taxsoft. Add this to the #88 million acquisition of US accountancy software vendor Peachtree in February and it becomes clear that Sage is determined to grow its business in an increasingly competitive market.

The accountancy giant is highlighting Tetra's offering in mid-range accountancy software as the key attraction of the purchase, since it operates in a market Sage has tried to crack in the past with limited success.

Graham Wylie, managing director of Sage, said the vendor has been under pressure from customers and partners to increase its high-end offerings in the mid-range market. 'We decided to acquire rather than build from scratch,' he said.

Tetra's CS/3 finance, distribution and manufacturing software is a diverse package that can be implemented in organisations with a handful of users or several hundred, although it is typically used in companies operating between 20 and 30 PCs. It is generally considered a solid product with a loyal customer base.

From a business point of view, many agree that the acquisition makes a lot of sense for Sage as well as for Tetra. Tetra announced strong growth for the six months ended 30 November 1998, with operating profit rising 25 per cent to #1.62 million and revenue climbing 26 per cent to #16.2 million. Tetra shareholders will be especially pleased with the 305 pence per share they will receive because it represents a premium of nearly 68 per cent over the closing price on 29 January, when Tetra first announced that it was holding discussions with Lynx.

Eduardo Loigorri, managing director of Exchequer Software, told PC Dealer: 'The acquisition makes good corporate sense. Sage has bought a large market share with a solid and loyal customer base.'

But industry observers have expressed surprise that Tetra has been bought by Sage at all, pointing out that Sage's last foray into the mid to high-end market - the purchase of Multisoft in 1994 - was fraught with difficulties.

Multisoft was run as an independent division for three years before it was finally folded into Sage in June 1997 and the products were rebranded under Sage's banner.

John Tate, managing director of reseller Tate Bramald, said: 'I'm bemused by the acquisition. Sage has been busy buying companies left, right and centre but it has no proven experience of integrating businesses.'

Jonathan Hubbard-Ford, chief executive of Pegasus Business Software, said: 'This acquisition takes Sage into an area in which it has no expertise.

It is an interesting move and a good deal for Tetra, but for Sage, it is very different from the shrinkwrapped market.'

Part of the problem Sage had with Multisoft was managing its largely direct sales operation, which many felt conflicted with Sage's own channel operation. Following months of speculation, Sage eventually sold Multisoft's direct arm to Ibis Systems in March 1998.

Wylie said although Tetra also sells direct to multinationals, Sage had learned a lot of lessons from its experience with Multisoft: 'The main problem with Multisoft in the past was that it never fully delivered its Windows offering, but now I would argue that it is profitable.'

Confirming that Tetra will be run as a separate division of Sage, Wylie added: 'This will have no effect on the channel structure of either company because only a limited number of Sage resellers - about 20 - will be able to handle Tetra's products.'

Wylie added that the clear lines between the two companies' offerings would ensure there was no conflict for resellers. But observers maintained that Sage and Tetra resellers should watch Sage's moves regarding its product line-up extremely carefully.

Loigorri said: 'If I was a Tetra reseller, I would want to know whether CS/3 will be integrated into Sage, but I wouldn't be too worried. However, if I was a Sage reseller, I would be worried that it would transfer its technology from Sovereign to CS/3, because it would be left with few alternatives.'

Another source said: 'Some Tetra resellers won't feel comfortable dealing with Sage because it hasn't had a good experience in this area of the market. There would need to be some clarifications from Sage.'

According to observers, there are also question marks over the longevity of Tetra's product technology. Tate said: 'Tetra's CS/3 is an old product with a limited shelf life and as far as I can see, a lot of Tetra customers are jumping ship. At the enterprise resource planning (ERP) end it is under threat from the likes of SAP, and at the lower end it is threatened by global companies such as Systems Union.'

Hubbard-Ford added: 'Tetra has a very functional product but it is not making full use of the current technology.'

There seems little doubt that the business software market is being assaulted from all angles as vendors try to increase their offerings across the range. The high-end ERP vendors continue to push down into smaller companies and Sage's acquisition of Tetra further demonstrates that the medium-range market may be where the battle for overall dominance will be fought. The acquisition may allow resellers to expand the range of accountancy software they supply, but it remains to be seen whether Sage can avoid the business integration problems that have dogged the vendor in recent years.