But the deal nonetheless added to the sense that the deeply unexciting corner of the tech sector that is accounting software has all of a sudden become exciting.
That is in no small part due to Xero, the Kiwi accounting software platform, and chief rival of MYOB, which has emerged as one of the most hyped tech stocks on the ASX in recent years.
Investors otherwise known for their scepticism, such as Bronte Capital’s John Hempton, gush about Xero’s potential. Hempton is on the record as saying he thinks the Wellington-based firm, which currently has a market value of $6 billion, could become a $100 billion, global company.
Ophir Asset Management portfolio manager Andrew Mitchell is also upbeat. “We think Xero can grow 25 to 30 per cent per annum for the next four to five years and there just aren’t many mid cap Aussie listed companies that can grow at that rate for that period of time,” he says.
Another investor from a respected fund tells Fairfax Media that Xero is “maybe the best business in Australia”.
A ‘pairs trade’ of buying shares in Xero and shorting shares of MYOB has been popular among some local hedge funds in recent times – it’s effectively a bet that Xero could continue to pull away from its older rival.
But with its bid for MYOB, KKR appears to be betting the opposite: that under its stewardship MYOB can close the gap.
MYOB, which stands for mind your own business, has had a colourful corporate history, long before the recent saga surrounding the ABC in which it was (indirectly) embroiled.
The accounting software pioneer (whose origins stretch back to the 1980s) first listed on the Australian Stock Exchange in 1999 against the backdrop of a boom for tech stocks.
The company makes software for small businesses and other forms helping them track and organise their finances that is more advanced than manual bookkeeping in excel.
When the Howard government introduced the Goods and Services Act in 2001, MYOB experienced a surge in sales.
In 2009, in the aftermath of the global financial crisis and amid a cooler climate for tech stocks, MYOB was acquired by Sydney private equity firm Archer Capital in a deal that valued it at $437 million.
Archer offloaded the business in 2011 to Bain Capital, the US private equity giant founded by former presidential candidate Mitt Romney, for $1.2 billion.
Bain held MYOB for nearly four years, and then floated the business on the stockmarket in 2015. At the time, it retained an 58 per cent stake in the company, but it has progressively sold down since then.
Last weekend, KKR struck a deal to buy the bulk of Bain’s remaining stake in MYOB, or 17.6 per cent of the company, and lobbed a takeover proposal for the rest.
While MYOB was being passed between private equity firms and on and off the stockmarket, a formidable challenger from across the Tasman emerged.
Xero was founded in 2006 by Rod Drury, a Kiwi entrepreneur. Ironically, one of its earliest financial backers was exiled MYOB co-founder Craig Winkler.
While MYOB has drawn interest from private equity funds, who typically restructure companies and load them with debt to supercharge returns, Xero has been backed by more growth-minded venture capital funds.
For a time that included Valar Ventures, a fund set up by Peter Thiel, the American billionaire PayPal co-founder and early Facebook investor who controversially gained New Zealand citizenship and is a prominent supporter of US President Donald Trump.
Thiel has sold out of Xero, but vaunted growth funds Technology Crossover Ventures and Matrix Capital Partners remain on its register.
Xero’s accounting software is based in the cloud, as opposed to MYOB’s which historically was installed on company servers or a small business computer.
The company has invested heavily in research and development, and has built artificial intelligence capability into core parts of its software to automate aspects of the bookkeeping process and minimise user mistakes.
It has also struck deals to integrate data with major banks, enabling users to reconcile transactions more easily, and in some cases, obtain loans more quickly.
Sources close to the giant fund say if the takeover proposal succeeds it won’t be a case of slash and burn at MYOB
The approach seems to have worked. Xero ended last year with 884,000 subscribers in Australia and New Zealand (and nearly 1.4 million globally) compared to MYOB’s 492,000 online subscribers.
MYOB shares are down about 3 per cent from where they (re) listed in 2015. Xero is up more than 100 per cent over that period, and its supporters still think it has room to grow.
“It’s winning strong market share in Australia, New Zealand and now the UK which is a market five times the size as Australia,” says Ophir’s Mitchell.
KKR evidently sees things differently.
A source close to the giant fund says if the takeover proposal succeeds it won’t be a case of slash and burn at MYOB, but rather, they will be prepared to invest for growth.
The source pointed to recent turnarounds KKR has pulled off involving legacy software companies such as Norwegian software provider Visma, which it recently sold for a sizeable profit.
Credit Suisse analysts this week said a competing bid for MYOB is unlikely. Its legacy platform, built before the cloud, would be hard for another software provider to integrate with. And KKR now owns nearly 20 per cent of the business, making it harder for another financial buyer to enter the fray.
The barbarians are at the MYOB gates. Justin Milne and the board will now have to decide whether to let them inside the building.
John McDuling writes about business, technology and the economy. Previously he was a reporter for Quartz in New York, covered telecommunications and markets for the Financial Review, and worked in the finance industry.