Sage Exits Latin America Amid Cloud Transition Growing Pains

The British accounting software company Sage is offloading its operations in Brazil in a deal estimated to be valued at £1 million, plus deferred consideration of up to £9 million, according to reports on Tuesday (March 3).

The subsidiary in Brazil is considered to be outside the firm’s “strategic focus.” Following an auction process, Sage has agreed to sell the business to local management. The sale is expected to close by September 2020.

“This divestiture is part of Sage’s strategy to focus on subscription software solutions that are in or have a pathway to the Sage Business Cloud,” according to the statement.

For the fiscal year ending September 2019, Sage reported revenue of £53 million and an operating profit of £2 million. In FY2018, revenue was £54 million and the operating profit was £2 million.

Sage anticipates a “statutory non-cash loss on disposal of £15 million on completion, of which £11 million reflects the reclassification of foreign exchange losses from other comprehensive income to the income statement,” according to the company.

Sage had always faced an uphill struggle in Brazil, Anthony Miller, managing partner at TechMarketView, told The Register.

“The Brazilian and therefore Latin American ERP market is dominated by TOTVS, which is by far the largest indigenous software company in the region, with revenues of just a little over £400 million. To be honest, Sage simply didn’t have a chance with its patchwork quilt of accounting packages,” Miller said.

Founded in 1981 by David Goldman, Sage grew to become the market leader for on-premise accounting and payroll software for SMBs. The company said that roughly 50 percent of the U.K.’s employees are paid using Sage software.

In July, Sage started struggling as it moved its business model to cloud-based subscriptions, which caused its software revenue to plummet. In addition, cloud-native software startups like Xero and Tipalti became serious rivals.

The company is also selling off Sage Pay, which is on track for a capital return of £250 million. Revenue growth in 2020 is expected to be between 8 percent and 9 percent.

As Sage shifts its focus to the cloud, it is moving away from payroll, and has divested its U.S. assets for $100.3 million. Sage’s payroll outsourcing unit in the U.S. posted a $1.28 million loss last year. U.S.-based human resources (HR) management company iSolved will acquire the assets.