MYOB and Solution 6 to merge

Accounting software vendor, MYOB, has swallowed up the accounting, compliance and training divisions of fellow ASX-listed software vendor Solution 6, in a deal worth more than $230 million.

Solution 6 has also announced that it will sell its professional and enterprise divisions to US holding company, Francisco Partners, for $34 million.

These divisions developed and marketed software for large legal and professional services firms under brands such as CLO, CMS.Net, Keystone, Business Intelligence, CABS and Novient.

The deal will see MYOB market accounting products in both the small and medium business markets. It will also eventually lead to the phasing out of the Solution 6 brand.

The merged entity

MYOB shareholders would own 67 per cent and Solution 6 shareholders the remaining 33 per cent of the merged entity, the companies said.

The merged MYOB and Solution 6 company would have two divisions, MYOB chief executive officer, Craig Winkler, said. One would be focused on small to medium enterprises (SMEs) and the other specifically on accountants.

“We will combine the complementary ranges of software products and services for accounting firms currently provided by MYOB and Solution 6,” he said.

The two companies will also be combining their product development teams.

The company will have about 1000 employees in offices across Australia, New Zealand, the UK, Asia and the USA. The company expects that the merger will makes some positions redundant - mostly those in administrative and management positions at Solution 6’s corporate office.

MYOB’s existing relationship with the distribution and reseller channel would not be affected, Winkler said.

“We are not anticipating much change to our relationship with our channel partners,” he said. “Sales through the channel have mostly been for our SME product range on the MYOB side, and there will be no significant change to this.”

No more Solution 6

The Solution 6 brand name will all but disappear under the announcement, but not immediately.

Francisco Partners has licensed use of the name for a small period of time following the completion of its buy-out of Solution 6's professional and enterprise divisions.

The Solution 6 brand won't disappear overnight in Australia, Winkler said.

“For the foreseeable future the Solution 6 brand name has a place in our plans,” he said.

However, the merged company will carry the MYOB brand.

The company intends to eventually migrate and develop new applications on a single platform.

“It will be a gradual, evolutionary process for newly developed products on the one platform,” Winkler said.

Solution 6 chief executive officer, Neil Gamble, said he would stay on with Solution 6 until the merger with MYOB and the sale to Francisco Partners were both complete.

He expected these processes to take several months.

The details

The proposed merger will be by way of Schemes of Arrangement by Solution 6.

MYOB will offer 0.55 MYOB shares for each Solution 6 share it does not already own. This will take place after distribution by Solution 6 of up to $0.20 cents per share ($52.7 million) in surplus cash to its shareholders by way of capital return.

The combination of the two businesses was the original rationale behind MYOB’s acquisition of 12.6 per cent stake in Solution 6 in June 2003, Winkler said.

“The merger was unanimously recommended by both boards,” he said.

Solution 6’s major shareholder, GPG, has also endorsed the merger. MYOB has made an option agreement with Guinness Peat Group (GPG), which will increase MYOB relevant interest from 12.6 per cent to 19.9 per cent.

The merger is subject to certain conditions, including regulatory approval (the ACCC, ASIC, ASX and New Zealand Commerce Commission) and the approval of Solution 6's shareholders.

There are also some key terms that need to be met - such as repayment of at least $8,937,500 that former Solution 6 subsidiary, Alphawest, owes the company.

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