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Sage Group acquires Verus Financial Management

Deal highlights
M&A trend

Some other major deals that have occurred in the past year and a half include;

· Paypal's purchase of VeriSign's payment gateway

· The Chase-Paymentech merger (of which First Data is a part)

· Bank of America Corporations acquisition of MBNA and National Processing Co.

· First Data's alliance with Citibank

· The combination of retriever Payment Systems and iron triangle Payment Systems, portfolio companies of GTCR Golder Rauner LLC.

On Jan. 9, 2006, United Kingdom-based Sage Group plc, an accounting and business management software provider, announced plans to acquire Verus Financial Management Inc., a Nashville, Tenn.-based ISO and provider of credit card and check processing services. Sage will pay $325 million in cash to obtain Verus' assets from Financial Technology Ventures, a private equity firm, and its shareholders. The deal was expected to be completed within the month pending regulatory approval.

Both Sage and Verus focus predominately on small and medium-sized businesses (SMBs). Verus' portfolio consists of more than 100,000 merchants. Sage has 4.7 million customers, 2.4 million of which are in the United States, according to Financial Technology (FT) Partners LLC, Verus' adviser in the deal.

Sage's accounting software, Peachtree, which Sage acquired for $308 million in 1999, competes with Intuit Inc.'s products in the United States. (In 2003 Intuit acquired Calabasas, Calif.-based Innovative Merchant Solutions, a provider of credit and debit card processing services for small businesses. The acquisition provided Intuit with a processing platform in which to integrate its accounting software.) Through the Verus acquisition, Sage will obtain an electronic transaction processing platform in which to integrate its accounting software.

"Acquiring Verus expands our business management solutions into a growing market, where SMBs are showing clear demand for more automation of their business processes," said Ron Verni, Chief Executive Officer of Sage Software, a division of Sage, in a statement announcing the deal.

Under the terms of the acquisition agreement, Verus did not release a statement on the deal, and company officials would not publicly discuss it. Verus Chief Financial Officer Jim Edwards denied requests for copies of Verus' financial statements. According to FT Partners, Verus is a leading merchant acquiring company with close to $10 billion in annual transaction volume. Its revenue for the year ended Dec. 31, 2005 was approximately $64 million, representing growth of 26% on the prior year.

Rich Roberts formed Verus in 2002. Following Verus' acquisition of the ISO Network 1 Financial in July 2002, the company went on to acquire at least five other entities, including the ISO/MSP Cornerstone Payment Systems in January 2003 and the check conversion company Global eTelecom Inc. in December 2003.

Once Verus put itself on the auction block, it received a great deal of interest from many companies, both in and outside the financial services industry.

"Over five strategic buyers, including other processing companies, and over 10 private equity firms were engaged in discussion with Verus at one point or another," said Steve McLaughlin, Managing Partner with FT Partners.

FT Partners has been involved in two other major industry acquisitions: Royal Bank of Scotland's purchase of Lynk Systems and Pay By Touch's acquisition of CardSystems Solutions Inc.

Article published in issue number 060201

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