Recommended Tender Offer to Acquire Best for $445m

Sage Group PLC 12 January 2000 Not for release or distribution in or into the USA, Japan, Canada or Australia THE SAGE GROUP PLC ('SAGE') Recommended tender offer for Best Software, Inc. ('Best')and Vendor Placing - Recommended tender offer to acquire Best, listed on NASDAQ, for approximately $445 million (£272 million). - The tender offer is $35 in cash per Best share, a 24 per cent. premium to the closing price of a Best share of $28.25 on 10 January 2000 (the latest practicable date prior to this announcement). - The tender offer will be financed by a vendor placing of 43.7 million new Sage shares representing 3.6 per cent. of the current issued share capital of Sage to raise at least £272 million. - Best is a leading provider of asset management software solutions which help organisations improve the management of their people, fixed assets and planning processes. Best's payroll and fixed assets software products complement Sage's existing accounting software solutions. - Best distributes its products through an established value added reseller network, a channel strategy which is very similar to that employed by Sage. - Sage is familiar with the Best product range and is an active reseller of Best's payroll and fixed asset solutions. Best's products are also well known to Sage's value added reseller channel. - Best's new Imperativ product suite, which employs leading-edge Internet technology, will provide Sage with the opportunity to accelerate the development and introduction of its web-based HR and payroll services to the US market. - The acquisition of Best will provide Sage with a greatly expanded platform from which to grow its business in the strategically important US market. Commenting on today's announcement, the Group Chief Executive, Paul Walker, said: 'The acquisition of Best represents an exciting opportunity for the Sage Group. Best has high quality products, a powerful value added reseller network and a substantial customer base. The strategic fit with our existing US businesses is strong. Best's leading position in fixed assets, HR, payroll and budgeting software complements Sage's existing strength in core accounting software. In addition Best's advanced Imperativ Internet technology will enable us to accelerate the introduction of web-based HR management and payroll applications to the US market. Our combined businesses will represent a powerful force in the US small to medium- sized business market. The strong first quarter gives the Board confidence about the prospects for the full year.' PRESS ENQUIRIES: The Sage Group 0171 831 3113 today Paul Walker, Chief Executive 0191 255 3000 thereafter Aidan Hughes, Finance Director Deutsche Bank 0171 545 8000 Chris Airey Nicola Stevens Financial Dynamics 0171 831 3113 Giles Sanderson Jon Earl Please note: there will be a meeting for analysts and institutional investors that will commence at 8.45am for 9.00 a.m. this morning at the offices of Deutsche Bank, Winchester House, 1 Great Winchester Street, London EC2N 4DB. Deutsche Bank, which is regulated in the United Kingdom by The Securities and Futures Authority Limited, is acting for Sage and for no one else in relation to the acquisition of Best and the vendor placing and will not be responsible to any other person for providing the protections afforded to its customers or for advising any other person in relation to the acquisition of Best or the vendor placing. This press release is not an offer of securities for sale in the United States and Sage securities may not be offered or sold in the United States absent registration with the U.S. Securities and Exchange Commission or an exemption from registration, and no such registration or public offering of Sage securities in the United States is planned. INTRODUCTION Sage is today announcing a recommended offer to be made by its US subsidiary (Bobcat Acquisition Corp.) for the entire issued share capital of Best for a total consideration of $445 million which values Best at £272 million on a fully diluted basis (excluding the option held by Sage to purchase shares equal to 19.9% of the outstanding shares of Best). This represents $414 million (£252 million) for the issued equity of Best and $31 million (£19 million) for outstanding options. Sage is financing the acquisition through a vendor placing to raise not less than £272 million by the issue of 43,707,488 new Sage shares (representing 3.6 per cent. of the current issued share capital of Sage). The placing has been fully underwritten by Deutsche Bank. The offer of $35 per Best share represents a premium of 24 per cent. over the closing price of a Best share of $28.25 on 10 January 2000 (the latest practicable date prior to this announcement). The Directors of Best have agreed to recommend the offer and Sage has received undertakings to tender shares from the Directors and executive officers of Best who beneficially own in aggregate 1,007,859 Best Shares (representing approximately 7.5 per cent. of the fully diluted share capital of Best (excluding the option held by Sage to purchase shares equal to 19.9% of the outstanding shares of Best)). BACKGROUND TO THE ACQUISITION OF BEST The principal activity of the Sage Group is the development, distribution and support of branded PC accounting and payroll software and related products for small to medium sized enterprises ('SMEs'). Since flotation in December 1989, the Sage Group has grown both organically and by acquisition. In the last five years, the Sage Group has increased turnover and earnings per share at an average annual compound rate of 43.2 per cent. to £307.0 million and 36.0 per cent. to 42.24p (4.224p after the share split) respectively. The Group's expansion into overseas markets has been effected over the past five years through a series of strategic acquisitions. This growth strategy reflects the Board's belief that acquiring a leading brand in an overseas market with an established distribution network, a substantial customer base, and in particular, a product range that has been specifically developed to comply with that market's legislative, fiscal and accounting conventions, is more effective than developing a product in one market and attempting to sell that product cross-border into other markets. Sage's acquisition strategy over the past five years has resulted in the Group acquiring interests in significant businesses in the UK, France, Germany and the USA. These businesses have benefited from Sage's skills in brand management, product marketing and channel management as well as from its expertise in installed base marketing (the marketing of products and services to existing customers to generate increasing streams of recurring revenues). The successful integration of these businesses into the Group has contributed significantly to the Group's performance over this period and to Sage's position as one of the leading international players in PC accounting software products and services. The Group intends to sustain growth in revenue and earnings per share not only by ensuring that the Group's existing businesses continue to be managed more productively, but also by making appropriate acquisitions in both new and existing markets. The offer announced today to acquire Best represents an important step in the Group's expansion programme in the strategically important US market. REASONS FOR THE ACQUISITION - Best is a leading US provider of asset management software solutions designed to help organisations manage their people, fixed assets and planning processes better. - Asset management software has developed into a specialist field in the US market primarily because of the considerable complexity involved in meeting the demands of a frequently changing and complicated legislative and fiscal environment. - The Board believes that the acquisition of Best will provide the Group with a significantly expanded presence in the strategically important US market. - The Board believes that Best has high quality products, a strong value added reseller network and a substantial customer base. The strategic fit with Sage's existing US businesses is strong. Best's portfolio of payroll, fixed assets and budgeting software complements Sage's existing strength in accounting software. The combined businesses will represent a powerful force in the US small to medium-sizedbusiness market. - The Board believes that Best's new Imperativ product suite, employing leading edge Internet technology, will provide Sage with the means to accelerate the development and introduction of a range of web-based payroll and HR management services to the US market. - The Board believes that many of Best's products can be scaled down to provide Sage's existing customers with affordable payroll and fixed assets management solutions. - Sage's reseller community will provide Best with a much expanded distribution channel for its products. - The acquisition of Best will provide Sage with a significantly expanded platform from which to grow its business in the US. - It is expected that the acquisition of Best will be enhancing to Sage's earnings in the first full year. INFORMATION ON BEST Best, a NASDAQ listed company, has its headquarters in Virginia, USA. Best is a leading provider of asset management solutions which help organisations improve the management of their people, fixed assets and planning processes. Best's solutions have been designed to complement core financial systems and are scaleable from stand-alone desktop applications running on personal computers to multi-user work group and client/server programs designed for use on PC local area networks. As at 30 September 1999, Best had over 49,000 licensed customer locations, representing over 138,000 licensed seats. Best derives a majority of its revenues from product licence fees and from services revenues, which include maintenance and support agreements, training and consulting services. BEST'S PRODUCT RANGE Best's Abra Suite of payroll and HR management solutions provides US businesses with a comprehensive solution to their people management needs. Processing payroll and maintaining accurate personnel records in the US market demands great attention to detail not least because of the different tax regimes that prevail from time to time in different States and Cities across the country. Ensuring that all appropriate tax and other deductions have been made and that the resultant distributions to employees as well as to Federal, State and City tax authorities have been calculated correctly is a source of considerable concern to many businesses in the US. The complexity of managing the payroll process is exacerbated by the fact that tax rates change relatively frequently, leading to a constant need to ensure that payroll software is up-to-date. Many of Best's customers choose to take out support contracts so that they can be assured not only that they are processing and maintaining accurate and up-to-date payrolldata but also that, should they need it, they can consult Best for help and advice. Fixed asset accounting in the US market is another area requiring meticulous attention to detail not least because of the complex tax regulations governing different kinds of fixed asset. Each fixed asset in a business needs to be accounted for separately and the tax payable on that asset to Federal, State, County or City authorities computed separately. For these reasons accounting for fixed assets has become something of a specialist area in the US. Best, through its FAS family of fixed asset management products has built a strong presence in the US market. The inherent complexity of fixed asset accounting means that, as with payroll, many customers prefer to take out support contracts with Best to ensure that their software is always up-to-date and that, should they need it, they can consult Best for help and advice. Best's new Imperativ product suite, employing leading edge web native technology, is an integrated payroll, HR and fixed assets management solution. Sage believes that the Imperativ technology will be a critical element in Sage's drive to develop a high- quality, scaleable, web-based product range for the US market. DISTRIBUTION CHANNELS Best reaches its customer base and target market through a multi- channel sales and marketing strategy that includes its network of value-added resellers, accounting firms and consultants, a direct- response telesales operation, strategic marketing alliances and a National Accounts direct sales organisation. Best's payroll and fixed assets management software solutions are well known to Sage and to its value added reseller channel. Sage promotes Best's payroll and fixed assets products to its customers as being solutions that are complementary to Sage's core accounting products. Sage and Best have worked together previously on a number of channel marketing initiatives in the US market. Following the acquisition of Best it is intended that the number and frequency of these joint marketing initiatives will be intensified. MANAGEMENT Best's management team is led by Timothy Davenport who has considerable experience of the US accounting software industry. Over recent years, he has built up a professional management team at Best which has successfully managed the growth of the company. FINANCIAL PERFORMANCE OF BEST Set out below is a summary of key financial information for Best as reported under US GAAP. This information includes Best's preliminary results for 1999 which were announced in the US today, with translation into sterling (for illustrative purposes only). Year ended 31 December 1998 1999 1999 $m $m £m(1) Turnover 69.3 91.4 56.6 Operating profit (2) 11.9 17.2 10.6 Profit before tax 9.1 15.9 9.8 Profit after tax 5.6 9.9 6.1 Net assets 40.1 50.2 31.1 Net cash balances 46.3 50.5 31.3 (1) Basis of exchange rate: £1 = $1.6153, being the prevailing exchange rate at 31st December 1999. (2) Operating profit stated before write off of purchased research and development and amortisation of acquired intangibles REVENUE ANALYSIS - YEAR TO 31/12/99 1999 $'000 New Licences 26,993 30% Upgrades 6,171 7% Services: Training 7,032 8% Support 34,823 38% Professional services 7,688 8% Other 8,707 9% -------- ------- Total Revenue 91,414 100% ======== ======= PRINCIPAL TERMS OF THE ACQUISITION The acquisition will be effected in a two stage process - a tender offer and a merger. A US subsidiary of Sage (Bobcat Acquisition Corp.) will make a tender offer to Best shareholders by means of a document containing an offer to purchase (the US equivalent of an offer document) which is expected to be filed with the SEC and mailed to Best shareholders on Friday, 14 January, 2000. It is expected that the offer will initially be open until midnight New York time on Friday, 11 February 2000. The conditions to the tender offer will include a minimum condition (described in further detail below) and various other conditions, including the expiry of applicable waiting periods under the US Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended and the admission to listing on the Official List of the London Stock Exchange of the Sage shares which are to be issued in connection with the acquisition. The above arrangements are reflected in a merger agreement between Sage, Bobcat Acquisition Corp. and Best, which also provides that, following the purchase of Best shares in the tender offer, a merger between Bobcat Acquisition Corp. and Best will be effected, under Virginian law, with Best being the surviving entity, pursuant to which Best will become a wholly owned subsidiary of Sage. Sage's obligation to accept for payment and pay for shares of Best tendered in the offer, is conditional upon, among other things, there being validly tendered and not withdrawn prior to the expiry of the offer at least a majority of the shares of Best on a fully diluted basis (excluding the option held by Sage to purchase 19.9% of the outstanding shares of Best) ('minimum condition'). If tenders in respect of more than 90 per cent. of the Best shares are received, the merger will occur shortly after the closing of the tender offer without a vote of the shareholders of Best. If more than a majority but less than 90% of the shares of Best are tendered and accepted for payment, a vote of the shareholders of Best will be required to approve the merger (even though Sage will, at such point, own enough shares to approve the merger without the vote of any other shareholders). This process could take up to three months pursuant to requirements of U.S. law. The merger agreement may be terminated in certain circumstances, including if the conditions to the tender offer have not been met or, in certain circumstances, if a superior offer is made for the Best shares. A break up fee may be payable in certain circumstances by Best of an amount equal to $12.0 million (plus out of pocket expenses up to a maximum of $1.5 million). In addition, Best has granted Sage an option to purchase up to 19.9% of the outstanding Best shares at a purchase price per share of $35, subject to the terms and conditions set out in an Option Agreement. The aggregate value of the break-up fee and this option is limited to $22,000,000. APPENDIX FINANCIAL INFORMATION ON BEST (AS REPORTED UNDER US GAAP) PROFIT AND LOSS ACCOUNT Year to 31 December 1998 1999 1999 $'000s $'000s £'000s Turnover 69,330 91,414 56,593 Cost of sales (13,422) (19,122) (11,838) -------- ------- ------- Gross profit 55,908 72,292 (44,755) Sales and (24,604) (30,934) (19,151) marketing Research and (11,157) (14,643) (9,065) development General and (8,295) (9,519) (5,893) administrative Write-off of (4,170) (1,200) (743) purchased research and development Amortisation (882) (2,374) (1,470) of acquired intangibles -------- -------- ------ Operating 6,800 13,622 8,433 profit Net interest 2,323 2,276 1,409 income -------- ------ ------ Profit before 9,123 15,898 9,842 tax Tax (3,500) (6,035) (3,736) -------- ------- ------ Profit after 5,623 9,863 6,106 tax ======== ======= ====== EPS (Basic) $0.46 $0.79 0.49p BALANCE SHEET Year to 31 December 1998 1999 1999 $'000s $'000s £'000s Fixed assets: Tangible 4,333 5,757 3,564 Intangible 7,178 12,533 7,759 ------- ------- ------- 11,511 18,290 11,323 Current assets: Stock 138 352 218 Debtors 16,641 20,869 12,920 Cash and cash equivalents 46,280 50,534 31,285 ------- ------- ------- 63,059 71,755 44,423 Creditors: Falling due (14,394) (13,999) (8,667) within 1 year ------- ------- ------- Net Current 48,665 57,756 35,756 Assets Total Assets less Current 60,176 76,046 47,079 Liabilities Creditors: Falling due (125) - - after 1 year Deferred Maintenance (19,966) (25,797) (15,970) Income ------- ------- ------ Shareholders' 40,085 50,249 31,109 Funds ======= ====== ======= Note: Values shown have been translated from US dollars to Sterling (for illustrative purposes only) using the 31 December 1999 exchange rate of £1:$1.6153 Source: Form 10-K for 1998 and preliminary results for 1999

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