Analysis: The $136m payday: MYOB buys NZ's Banklink
Keallhauled spends a lot of time profiling companies taking their first steps on to the market, or the stock exchange.
To motivate startups, and generally soothe our souls, here's a tale from a company at the other end of the cycle whose founders have made it, sold up and locked in their fortune.
On June 4, Australian-based accouting company MYOB finalised its purchase of BankLink for $NZ136 million.
Talking to media for the first time about the deal, director and co-founder Malcolm MacDonald told NBR Online the company had almost no debt - or at least only in the single-digit millions.
BankLink - whose software automates the process of supplying clients' bank statements to accountants - was owned by its three co-founders: MacDonald, who held a 37.5% stake (valued at $51 million under the deal); Derek Jones, who also held a 37.5% stake, and Stephen Agnew with a 25% holding.
The privately-held Auckland company has never commented in detail on its financials, and when NBR catches up with MacDonald in a cafe near its Mt Eden, Auckland headquarters, he continues to play his cards close to his chest.
But he does add one nugget of new information: BankLink's annual turnover was between $40 million and $50 million last year.
Was it profitable?
"Oh yeah. That's why they paid us one hundred and thirty six million bucks," responds MacDonald.
"There was a comment from Ben Kepes after one of your articles saying $136 million was a lot to pay for a marketing ploy, and I was thinking, 'Boy, you don't know how people like [MYOB's US owner] Bain Capital work.'
"Every dollar that goes onto the table they have to justify with a process beyond belief. So, yes, it's a very profitable company and always has been."
The company generates a lot cash because there’s no stock and very little capital deployment, MacDonald adds.
"A key part of the deal was to find the right buyer," he says; and a key element of being the right buyer was to commit to taking on BankLink's 170 staff, which the Aussie MYOB has committed to keeping (a good thing, too, given BankLink is yet another NZ tech to receive a no-strings direct grant for R&D, only to fall into foreign hands).
Messrs MacDonald, Agnew and Jones are moving on, however, and will have nothing to do with the BankLink under its new MYOB ownership
Jones will take on BankLink's UK business, which was not part of the deal. MacDonald says UK review is "zip" at the moment (roughly 75% of turnover comes from Australia; 25% from NZ).
"We devised in essence a 10-year plan to sell the business," MacDonald says.
"We wanted always to have 5000 accounting clients; we wanted always to have 500,000 bank accounts that we process every month. We reached those targets and that in combination with the [$40-$50 million] turnover was almost like the the flashpoint for us to say once we’ve got to those sorts of levels we’ve achieved what we want to achieve."
To play Devil's advocate, or at least Rod Drury's advocate, was there also an element of the world changing? Analysts have noted the way Xero circumvented BankLink, going directly to banks for its statement feeds in Australia and NZ, and partnering with Yodlee elsewhere.
"I think what he says carries some weight," MacDonald says. "But I don't think it's the complete answer. I think the thing people fail to understand is that BankLink has always focused purely on accountants as clients. BankLink has never been a supplier of services to end users. So although we have 500,000 bank statements we process every month, we don't know a single person."
However user-friendly accounting software gets, bean-counting is an inherently complex business, MacDonald argues. Some people will just never want to do their own accounts - and the accountants for that small army of hold-outs want accurate bankfeed data. After all, the legal buck stops with them. That's why the number of bank accounts processed by BankLink continues to grow, he says (it will shortly hit 550,000).
More broadly, he argues that BankLink provides better quality bankfeeds than Yodlee, whom he accuses of screen scraping (a claim Drury tells NBR is "mischievous and misleading", pointing out ANZ Bank uses Yodlee).
But is fast-growing Xero's direct-to-banks approach in the Australasian market, and banking going all-electronic a general threat to BankLink?
"Look, long term, the cloud is going to be the solution for companies that are profitable and have big client bases, such as BankLink and MYOB. But the question is how efficiently you transition them ... Technology is enabler but it's not a complete answer in itself in what is a fundamentally a services business is a mistake. I mean, it's certainly something investors want to hear. Why else would they pay $16 [for Xero shares] for what is a substantially loss-making company?"
Drury has his own beyond-technology angle, telling NBR a lot of accountants have been personally loyal to MacDonald, Jones and Agnew; the new corporate ownership is a chance for Xero to peel more away.
From floppies to cloud
The cloud is just the latest in a long-line of technology trends encountered by BankLink since it was founded in 1986 by MacDonald - a civil engineer, Jones - an accountant, and Commerce grad Agnew.
Accountants were spending mind-numbing hours typing in statements when Datacom was collecting all the information electronically on behalf of all the banks. The trio "persuaded" Datacom to give them access to the data. BankLink developed technology to effliciently extract it, then package it up for accountants.
Initially, the data was delivered on floppy disk. Once a month, the BankLink founders would work through the night, stuffing floppies into envelopes. These days, delivery is all electronic, but it was only a few years ago that the last wave of clients gave up floppies. "Accountants are conservative," MacDonald says.
BankLink's breakthrough moment came in the late 1990s as Australia prepared for the July 2000 introduction of GST.
The company already had a foothold across the Tasman, where MYOB was its distributor.
But the tipping point came when it took NZ accounting clients on a roadshow around Australia, showing off a system already proven on this side of the Tasman. Client numbers jumped from around 500 to 1500, setting the stage for further growth toward the 5000 accountants on board today.
"I'm going to take a year off, because I've never had a year off," MacDonald says.
When he returns, he wants to work with local startups, possibly by ramping up his involvement in Ice Angels (a business investment affliliated with The Icehouse that puts money into early-stage companies).
From the glint in his eye, NBR suspects it will be less than 12 months before he returns.