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What hasn't been said about MYOB buying Greentree

Australian accounting software company MYOB bought Greentree for NZ$25.5 million. It will pay another $3 million if the owners meet unspecified targets.

It’s the latest move by what was, until recently, the regional leader in small business accounting software.

Over the last five years Xero has hammered MYOB by offering a clean, online, subscription-based alternative to desktop PC accounting software.

The pair squabble over numbers, but whatever the details, Xero has pulled a lot of market share from MYOB in New Zealand and Australia. And that fact alone informs every major decision MYOB makes.

Xero looms

Xero thinks big. Its goals stretch far beyond Australasia, the New Zealand based software company wants to handle the world’s small business bookkeeping and expand into providing wider fintech services.

In contrast MYOB remains focused on Australia and New Zealand. Which goes some way to explain why it bought Greentree. If Xero is expanding outwards, MYOB is pushing up.

Greentree is a New Zealand-based business software company with a range of ERP (enterprise resource planning) products. It sells to around 850 organisations in New Zealand, Australia, the UK and US. It’s a quiet achiever, an export earner and something of a catch for MYOB.

Greentree sweet spot for suites

Most of Greentree’s customers are larger than the companies that buy small business accounting software from the likes of MYOB and Xero.

They include firms like Ryman Healthcare, Mediaworks, Easiyo and Johnston’s coachlines. These are big names in New Zealand, but they are small in regional terms and tiny on a global scale. Greentree also counts schools among its customers.

Even so, the important point is that Greentree’s customers are organisations that need more than basic small business accounting. There are dozens of ERP modules in the firm’s portfolio.

To a degree this squares with MYOB’s other recent New Zealand acquisitions. In the last three years it has purchased BankLink, PayGlobal, Ace Payroll and IMS Payroll.

While this portfolio extends MYOB’s reach into adjacent markets, the thrust is to push upmarket to serve more lucrative customers. ERP buyers spend a lot more each month MYOB can charge for small business accounting software. Greentree licenses typically run to many thousands of dollars a year.

The cathedral and the bazaar

While MYOB is moving upscale, it is also vertically integrating. This is in contrast to the focus at Xero which has developed a vibrant ecosystem of partners that create point apps extending the brand’s reach.

Writing in the NBR, Chris Keall quotes Ben Kepes who says MYOB will treat Greentree as a cash cow. He warns it will bleed the company dry while moving its customers to MYOB products.

That sounds plausible. It’s a tried and tested strategy. Many software companies have treated acquisitions the same way in the past.

Keall and Kepes also mull over the potential, imminent parting of the ways between MYOB and Bain Capital, the US private equity firm owning a majority stake in the business. In the greater scheme of things, Greentree is too small to be a material consideration in what happens next to the company. On the other hand, a timely acquisition shows the management isn’t asleep at the wheel — something potential investors will want to see.However, it looks as if MYOB is feeling the heat from competition with Xero at the mass market end of the accounting software game. Moving into markets where customers are less inclined to count pennies speaks volumes about how MYOB views the future of small business accounting software.