MYOB opens books as KKR ups bid to $3.77 per share

US private equity giant KKR has responded to pressure from small cap funds to up its offer amid stalling discussions with the accounting software giant, increasing its non-binding offer from $3.70 to $3.77 per share.

On the back of the new offer, which values MYOB at $2.23 billion compared to the original $2.19 billion offer, MYOB agreed to open its books to KKR, on the condition that it agreed to a confidentiality agreement.

MYOB shares jumped 4.6 per cent to $3.51 in morning trade on the back of the announcement. But this was still below the $3.55 close price MYOB hit on the day the KKR proposal was announced in October.

“The proposal remains subject to customary conditions including KKR’s completion of due diligence and the resolution of its financing arrangements,” MYOB said in a statement to the ASX.

This is the second time KKR has made a play for MYOB, having also made an offer for the business when Bain Capital took it over in 2011.

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If the deal proceeds it will be the second time a public MYOB has been taken private by a private equity firm and its third private equity owner.

The Australian Financial Review understands that KKR is keen to keep chief executive Tim Reed at the helm and that it wants to invest in the business, rather than cut costs.

KKR’s $3.77 offer comes on the back of Street Talk reporting earlier this week that a small group of funds, including Colonial First State Global Asset Management, wanted to see the MYOB board get higher offer, before granting KKR due diligence.

The deal is conditional on the unanimous support of the MYOB board, which has assembled an independent board committee of Justin Milne, Anne Ward, Andrew Stevens and Fiona Pak-Poy to assess the proposal.

No decision has been made yet regarding whether or not MYOB will support the offer.

Xero competition

Founded in 1991, MYOB was the undisputed, largely unrivalled, leader in accounting software in Australia and New Zealand for the first 15 years of its life, but in 2006 Rod Drury co-founded Xero.

Today the two companies dominate the market, with a June report from Morgan Stanley indicating that while MYOB still had more than 50 per cent market share in the overall accounting software sector, Xero had up to 40 per cent. It tipped that MYOB’s share would slip to 30 per cent over the next five years, “in line with its cloud share today”.

MYOB maintains a larger share of the accounting practice management software market, a market in which it tried to achieve a larger position through the acquisition of Reckon earlier this year (until it abandoned its offer ahead of a decision from the Australian Competition and Consumer Commission), but Xero is the leader in cloud accounting software.

MYOB has about 492,000 online subscribers, just in Australia and New Zealand, compared to Xero’s 1.38 million around the globe, which include 884,000 locally.

Share price performance

While MYOB maintains a slim lead in overall market share, Xero is valued much more highly by the market, trading at $41.18 a share, giving it a market capitalisation of $5.82 billion.

KKR’s proposal for MYOB values the businesss only 12¢ per share higher than its 2015 issue price of $3.65, but prior to the PE firm’s offer, MYOB shares had slipped around 15 per cent from nearly $3.50 to under under $3 in the last 12 months.

Since re-listing on the ASX, the highest the company’s price has climbed was $4.07 in August 2016.

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