All regulatory hurdles have now been cleared for accounting software company Reckon (ASX: RKN) to proceed with the sale of its practice management business, clearing the path to focus on its cloud-based tech whose customer base is rapidly expanding.
Due to the value of the sale of Reckon’s Accountants Practice Management Group (APMG) which is a subsidiary business, to The Access Group, the deal had to be reviewed by both Australia’s competition watchdog (ACCC) and the Foreign Investment Review Board (FIRB).
Neither had any objections to the $100m sale which will now proceed unconditionally.
Making the deal even more favourable for Reckon and its shareholders is the major market decline since the deal was first announced. The agreed $100m sale price is binding and will be paid in cash to Reckon before 2 August 2022. Such market volatility has disrupted other major deals linked to ASX companies, including the withdrawal of Latitude’s $335m acquisition of Humm’s consumer finance business last week.
With the sale of APMG, Reckon will be able to focus its efforts on its cloud-based accounting software which continues to increase its market share. As the low-cost alternative to the likes of Xero and Myob, Reckon has been adding integrations that can be plugged into its platform to become an all-encompassing business management platform, rather than just bookkeeping software.
This has been reflected in the customer base which has grown at an annual rate of 12% over the past decade for Reckon to now have more than 114,000 cloud-based users, primarily small business owners. This customer database is not included in the $100m sale of APMG.
Driving the 12% annual user growth has been the continuous addition of new business functions that Reckon has added to its platform, driven by investment in its tech stack. Over the past two years, Reckon has deployed $39 million towards its development expenses while slashing debt and delivering $7.9m and $7.4m net profit after tax in FY21 and FY20 respectively. Upon completion of the APMG sale, Reckon is expected to be debt free while returning the remaining proceeds to shareholders in the form of a special dividend.
In the coming months, Reckon has flagged the launch of three new cloud-based products that will include a new invoicing app, as well as ledger and business intelligence products.
Other fintech solutions flagged by Reckon include business loans and banking services which will be deployed to its 114k client base as the Company addresses all business owner needs within one platform.
The introduction of such services could potentially come via a strengthening of the partnership between Reckon and its major shareholder, payments company Novatti Group (ASX: NOV).
Since securing a 19.9% strategic stake in Reckon in July 2021, Novatti has commenced supplying Reckon’s 114k users with digital payment services to accept online payments via Visa and Mastercard under a profit-share agreement.
In a recent email to its shareholders, Novatti anticipates receiving about $8 million from Reckon’s special dividend.
Alfred Chan is an Analyst at Emerald Financial, specialising in ASX-listed small cap companies.
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