It's three months since Guy Berruyer shocked the market by announcing his decision to stand down as chief executive officer (CEO) of Sage (SGE). That news sparked a 5% drop in the share price on the day to 400p, and the slow decline continued since, the shares largely flat today at 370p. But that weak trend might be about to reverse as the £4 billion company appears to have pulled of something of a coup in appointing Stephen Kelly.
Kelly has a long history in UK technology, most recently as chief operating officer of UK plc's IT department and the chief instigator behind a switch away from huge IT integrators and opening the doors to the swathe of smaller British suppliers to get in on the government contracts act. He also carries baggage from the past.
After a fudged IPO, Kelly set about restructuring Micro Focus (MCRO) in 2005, including an aggressive acquisitions spree. But things came unstuck in 2009 just weeks after unveiling an ambitious three year plan, his shock departure causing a near-45% collapse in the share price.
It eventually became clear that Kelly had fallen foul of his fellow directors over incentives.
'Berruyer has done an admirable job in creating a platform for growth at Sage, but now it is time to pass on the reins and accelerate growth,' says Panmure Gordon's respected technology analyst George O'Connor today. 'From our dealings with him, and his track record in government Kelly fully appreciates the importance of having cloud (and in truth, customer intimacy) as a central plank of a modern IT company,' the analyst states.
But he faces a large and difficult task. Sage is one of the UK’s largest software companies and provides accounting, HR and related applications and services to small and medium sized businesses globally. But it has traditionally sold perpetual licences and is now under enormous pressure to embrace the cloud, and a software-as-a-service (SaaS) model.
This is an increasingly crowded space littered with young cloud specialists, such as Netsuite (N:NYSE) in the US, Kashflow and Freeagent here in the UK, and even New Zealand upstart Xero biting into its market share. Sage's answer is Sage One, yet this SaaS suite hasn’t really got going outside of the UK and is struggling badly in the US.
'As the first genuine new blood to come into the top echelons of Sage for as long as we can remember, Kelly inherits a business in transition,' says Ian Spence, founder of IT consultancy Megabuyte.
Years of acquisitions mean Sage’s product suites are siloed into national or regional boundaries, a structure at odds with the single global product base deployed by SaaS pure-plays.
'Under Berruyer’s watch, Sage has made progress in breaking down these silos, but we believe that the bulk of the job is still to do,' says Megabuyte's Spence. 'There is no doubt that Kelly has the strength of personality to drive through change but, with so many entrenched vested interests around Sage, we can’t help feeling that Kelly might need to break a few eggs to make a Sage omelette.'