Will moving early maximise MYOB's float hopes?

The accounting software firm is hitting the road early in its attempt to move a step closer to a float, perhaps to avoid any nasty market surprises.

For many in the financial services industry, January is a time of well-earned R&R. Bankers generally take a long break, returning after Australia Day.

But for the management of accounting software firm MYOB and its bankers, the holidays will end a little early on Monday when a 'non-deal' roadshow with investors takes the company one step closer to a public listing. 

MYOB, led by Tim Reed, is heading for an ASX listing after seven years of private equity ownership, under two different owners. It may raise as much as $1 billion in an IPO that would value the company at up to $3bn.

Four joint lead managers will handle the float -- Bank of America Merrill Lynch, Citigroup, Goldman Sachs and UBS -- and they will meet with investors starting on Monday. They will first head to Europe to visit international funds, before returning to meetings with local fund managers after Australia Day.

The current owner, private equity giant Bain Capital, bought MYOB for about $1.2bn in 2011 from Australian private equity firm Archer Capital. It was the largest deal in Australia to date for the Boston-based firm, which was once headed by Mitt Romney when it was spun out of consultants Bain & Co.

These so-called secondary deals, or sales between buyout firms, were especially common after the financial crisis when the IPO market was closed and corporate buyers were thin on the ground as no one wanted to take on debt.

The Bain deal enabled MYOB to continue a rapid expansion, building on its first cloud product launched in 2010 and buying out BankLink to offer a wider range of cloud accounting solutions. Management continued to be shareholders in the company after the buyout, and it is expected that both management and Bain will retain a stake after any IPO.

MYOB is a 30-year-old company and was the dominant player in small business accounting desktop software for most of that time, but it has been challenged in recent years by listed New Zealand rival Xero, whose software is entirely cloud-based.

Reed believes that MYOB still has around two-thirds of the small business market, but it has clearly lost some market share to an agile competitor. Xero has annualised revenues of $NZ130m, while MYOB had revenue of $140m in its first half.

For the first half to June 2014, MYOB saw a 29 per cent rise in earnings before interest, tax, depreciation and amortisation to $70m as its cloud-based and mobile solutions started to deliver.

The number of its clients using cloud files has risen sharply, with figures filed to the ASX on Thursday showing that 67 per cent of new product registrations in the three months to December 31 were cloud subscriptions, up from 48 per cent a year earlier.

MYOB has moved away from a licence to a subscription model, which brings in more revenue over time. Of the 1.2 million businesses using MYOB products, over 500,000 are now regular paying clients.

The company has traditionally targeted SMEs but is about to unveil a new cloud-based business management product called Advanced aimed at larger companies and run on the Amazon Web Services platform.

Xero’s shares have been hammered over the past year, falling from a peak of $NZ45 last March to just above $NZ16 as the company lost its US chief executive after just six months and analysts worried about its high investment costs and lack of profits.

The third player here is US-based Intuit, which has 90 per cent of the small business market in the US with its QuickBooks desktop software.

Australia’s IPO market began to sag heavily in December, when after a stellar $19bn year of new issues a series of deals were repriced downwards, downsized, and even then sank on debut.

Financial markets have been highly volatile in the new year as commodities extend their rout and investors worry about global growth, which means the window for new IPOs could slam shut with very little notice.

For a company like MYOB, with a defensive nature and secure revenue stream, the state of the broader equity market may be less of an issue. But its backers clearly see an early mover advantage in hitting the road before the end of the local holiday period, and perhaps before markets throw up any more unpleasant surprises.

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