Sage buys stake in cloud HCM vendor Fairsail

Phil Wainewright Profile picture for user pwainewright May 5, 2016
Sage takes a 21% stake in Salesforce-native ISV Fairsail, will promote as preferred cloud HCM for use with its Sage X3 mid-sized enterprise business package

stephen kelly sage
Stephen Kelly, CEO, Sage

SMB business software giant Sage today announced a £10 million ($14.5m) investment in cloud HCM provider Fairsail, whose software is built and runs on the Salesforce platform.

The partnership between the two UK-based companies will see Fairsail recommended as the preferred cloud HCM platform for customers of X3, Sage's business software for larger, mid-sized enterprises. X3 is available in both on-premise and cloud versions but is largely sold on-premise.

The announcement comes at the same time as Sage reports higher-than-expected revenues for the half year to March, up 6% at £747 million ($1.1bn). But the increase was not enough to deflect disappointment at a miss in operating margins, with profit rising just 1.9% to £189 million ($274m). Shares in the FTSE100-listed technology group closed down 3.64% on the day.

Partnership proposition

The Sage investment represents a 20.7% stake in Fairsail and gives Sage a seat on the HCM provider's board. Fairsail had been looking to raise funds when the partnership proposition came about, says CEO Adam Hale:

We were actively in a process to raise growth capital for Fairsail. It made much more sense for both organizations to combine it with a great go-to-market partnership. We fulfilled our capital requirements and it helps us to continue to scale out our growth.

Fairsail and Sage were already partnering around the Sage Live cloud business solution, which like Fairsail's product is built natively on the Salesforce platform. While Sage continues to support its own on-premise HR solutions, Fairsail is its preferred cloud HCM choice, says Sage executive vice-president Alan Laing. Today's extension to the existing partnership will see Sage promoting Fairsail to the more established X3 customer base, as well as continuing to market it alongside Sage Live, he explains.

Nothing is changing other than we're going further and extending our reach into other markets with the Fairsail partnership.

Fairsail's growth and our own growth and ambition is giving us an opportunity to grow faster.

Fairsail anticipates significant extra reach through Sage's own salesforce and its partner channel, says Hale.

We will be working really closely with the sales team at Sage. We know the level of trust and influence they have with their customers.

Technology influence

Hale is sanguine about the prospect of connecting Fairsail's cloud HCM into on-premise business systems, but emphasizes that his sales team will not be selling the Sage product themselves.

We look at this from a customer perspective. They have all kinds of back office systems and we integrate seamlessly with them all.

We won't be selling X3. It's the Sage salesforce that we will be getting up to speed to understand Fairsail and what we do.

The relationship extends to technology as well as marketing, adds Laing.

It's not just go-to-market. We are integrating into the Fairsail platform and we will work together with a joint development project to make that happen on quite a short timescale.

The stake will give Sage a say in Fairsail's future product strategy, according to Laing.

Why wouldn't we invest? It helps us influence the development direction, it helps them continue their growth.

Sage will also be rolling out Fairsail internally, at the same time as implementing X3 as its own internal business solution.

Competitive advantage

Laing added that deepening the partnership with Fairsail gives Sage a competitive advantage against Salesforce-native FinancialForce, which offers its own acquired HCM package alongside its core financials and professional services products.

This announcement we believe leapfrogs us ahead of FinancialForce on the Salesforce platform. As far as HCM is concerned, it's not to my mind a competitive solution.

Fairsail's cloud HCM competition comes from other quarters, says Hale.

We are the leading HCM solution on the Salesforce platform. The only competition we see in cloud HCM is from Workday and [SAP] SuccessFactors — but our time-to-value is literally a fraction of what they deliver.

Although Sage also partners with Microsoft and AWS cloud platforms, Hale said that Fairsail has no plans to pursue a multi-platform strategy and will remain loyal to Salesforce.

We've been on the Salesforce platform literally since day one. We are all-in on that platform. We have no plans to replatform.

It's a platform that works incredibly well for us not just from a delivery perspective but also from a go-to-market perspective.

In its half-year statement today, Sage was keen to highlight its continued progress in transitioning to a subscription business model since last year's results. There was a 50% increase in the number of software subscriptions to 842,000, with subscription revenues growing 35.3%, accelerating the pace from 25.4% a year ago. Recurring revenue growth nudged into double digits at 10.0% for the first time this decade.

My take

An interesting tie-up between two UK companies that each have strong relationships (though different histories) with Salesforce.

While Sage has only bought a minority stake in Fairsail for now, it appears to have fully adopted the company's HCM suite as its cloud offering for people management. In what was perhaps a Freudian slip that hinted at a broader gameplan, Sage CFO Steve Hare described the transaction to the Financial Times as an acquisition:

These kind of smaller, bolt-on acquisitions, where we spend tens of millions on kind of small, growing companies, is something you could well see us doing more of.

Whether such moves will be enough to hasten Sage's progress towards its recurring revenue and cloud ambitions remains to be seen.

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