MYOB Ltd.

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MYOB Ltd.

12 Wesley Court
Burwood East, Victoria 3151
Australia
Telephone: (61 3) 9222 9700
Fax: (61 3) 9222 9798
Web site: http://www.myob.com

Public Company
Incorporated: 1991
Employees: 1,098
Sales: $182.3 million (2006)
Stock Exchanges: Australian
Ticker Symbol: MYO
NAIC: 511210 Software Publishers

MYOB Ltd. is a global developer of accounting software, services, and support. The company serves some 500,000 businesses worldwide, especially those in the owner-operated category. In addition, its software applications are used by approximately 10,000 accounting practices, ranging from individual accounting practitioners to some of the world’s largest accounting firms. According to MYOB, it uses its understanding of both business owners and accounting professionals to maximize the synergies between them. MYOB (an acronym for “Mind Your Own Business”) is one of Australia’s most well-known brand names. Like many a successful enterprise, however, the company had a modest beginning.

ORIGINS: 1987–90

The company that would eventually become MYOB started with Craig Winkler, a native of Melbourne, Australia. In high school Winkler developed an interest in technology and spent his summer vacations doing maintenance and repair work on audio-visual equipment at area schools. He eventually secured a part-time job with Hewlett-Packard and studied electronic engineering at Australia’s RMIT University for two years.

In October 1987, just before the stock market crashed, Winkler and a friend established a computer software business in suburban Melbourne. The fledgling enterprise was operated from a rented house, which offered a spare bedroom for an office. This early venture involved the development of “some kind of interface to allow a computer to talk to a calculator-like device,” according to an August 17, 2003, interview Winkler conducted with the Australian Broadcasting Corporation’s Luisa Saccotelli.

On several occasions, Winkler had to forgo his own salary in order to pay other staff. In the April 2004 issue of Voyeur, Winkler recalled: “It was probably not the ideal time to start a small business. But it did teach me the value of frugality, the importance of cash flow and the dubious but essential reward of chasing debtors!”

As the 1990s began, technology costs reached a level where a growing number of small and midsized businesses were able to purchase personal computers. Nevertheless, hardware was only one side of the equation; business management software remained complex and expensive. Such applications were often designed for accounting professionals, and not business owners. It was this situation, and a desire to help business owners simplify and grow their operations, that inspired Winkler to search for a solution. He soon met an entrepreneur named Brad Shofer, who had like interests.

FORMATIVE YEARS: 1991–99

Winkler and Shofer initiated a worldwide search to see if accounting software for business owners already existed. Their search uncovered a U.S. company named TeleWare Inc., cofounded by Christopher Lee in November 1982, which had released an application called M.Y.O.B. for the Apple Macintosh. After securing the rights to adapt versions of M.Y.O.B. for the Australian and New Zealand markets in 1991, Winkler formed a joint venture with Shofer named Data-Tech Software.

TeleWare became BestWare Inc. when it was sold to Reston, Virginia-based Best Software in late 1993. However, Lee remained with the company and continued to serve as its president. The Data-Tech joint venture soon adopted the name of its software, becoming MYOB Australia in 1995. The following year, MYOB acquired BestWare and secured all rights to the MYOB name and intellectual property worldwide. MYOB Ltd. suddenly was a global company, with operations in the Asia Pacific region, Europe, and North America.

Lee remained as president of MYOB US Inc. His experience was a great asset to the organization. After helping to establish TeleWare, Lee was involved in the development of several popular software programs during the early years of personal computing, according to an October 18, 1999, Business Wire release. In addition to MYOB accounting software these included Andrew Tobias’ Managing Your Money for the Macintosh (personal finance), The Charles Schwab Equalizer (online stock trading), and the Dow Jones Market Manager (portfolio management).

MYOB quickly began earning recognition, beginning with the Small Business of the Year Award from Telstra and the Australian government in 1996. Two years later the company finished second to Microsoft in the packaged software division of the National Business Bulletin Corporate Image Survey.

Although MYOB started with business owners in mind, in 1997 the company also began developing solutions for accounting professionals. In this category, MYOB’s applications not only helped accounting practices improve their own operations, they also focused on improving the interface between accountants and business owners, including those using MYOB software.

By 1999 MYOB Ltd. enjoyed a base of some 350,000 customers. Profitable since 1991, the enterprise had grown to include MYOB US Inc.; MYOB Canada Inc.; MYOB Australia Pty. Ltd.; MYOB UK Ltd.; MYOB NZ Ltd.; and Teletax Systems (Aust.) Pty. Ltd. In addition, the company served accounting practices in New Zealand through its MYOB Practice Systems NZ Ltd. subsidiary. That year, Professional Toolz (NZ) Ltd., a software company serving some 120 accounting practices in New Zealand, was acquired and merged into MYOB Practice Systems, increasing its total customer base to some 1,000 practices throughout New Zealand.

Other important developments took place in 1999. After MYOB listed on the Australian Stock Exchange in July 1999, CA-Systems Ltd. was acquired two months later and merged into the company’s Teletax Systems division, which was subsequently renamed MYOB Practice Systems. This was followed by the signing of a 12-year lease on November 26 for a new, four-story international headquarters. The facility, located in the Tally Ho Technology Park in East Burwood, a suburb of Melbourne, was set for completion in December 2000.

The company finished the 1990s by acquiring Blue Tongue Technology Pty. Ltd. late in the year. Additionally, in December, David Tolleth was named general manager of MYOB US. Tolleth assumed the responsibilities previously held by company president Christopher Lee, who became MYOB US’s executive director and also continued to serve as executive director of the parent company.

COMPANY PERSPECTIVES

MYOB was one of the first businesses to recognise the unique needs of small-to-medium-sized enterprises and equip them with powerful, accessible and affordable business management systems. From the outset, MYOB solutions were aimed at alleviating an increasing administrative burden and giving business owners the necessary insights to run their businesses more successfully. From day one, MYOB has maintained a constant focus on providing quality customer support to ensure businesses gain maximum return from their investment.

GROWTH AND EXPANSION: 2000 AND BEYOND

MYOB ushered in the 21st century with a flurry of acquisitions and expansion initiatives. Acquisitions included a 50.1 percent stake in Recall Design Pty. Ltd. in May, and the acquisition of SeaSoft Computer Services Sdn. Bhd. in October. The SeaSoft deal gave MYOB access to an Asian distributor network that served Sri Lanka, the Philippines, Singapore, and Hong Kong.

MYOB’s expansion efforts also were focused on the Asian market. MYOB Hong Kong Ltd. was formed on April 13, followed by MYOB Asia Sdn. Bhd. on September 4. The company’s focus on Asian expansion continued in 2001. The acquisition of Rorquals Business Solutions Ltd. was finalized on January 6, allowing MYOB to better serve the Hong Kong market, and supporting its expansion into China. This strategy was evident by MYOB’s release of a Chinese-language version of its software in October. By 2001, approximately 450,000 companies throughout the world were using MYOB software, some 8,000 of which were located in Malaysia.

A number of important operational developments took place in 2001. In January, Dow Chemical veteran Matthew Critchley was named as MYOB’s chief operating officer. Around the same time, the company engaged in some restructuring. Specifically, the assets and liabilities of MYOB Practice Systems Pty. Ltd. (its Australian accounting practice software business) were transferred to MYOB Australia Pty. Ltd. At the same time, MYOB Practice Systems’ intellectual property rights were transferred to MYOB Technology Pty. Ltd. A similar action was taken in New Zealand, where the assets and liabilities of MYOB Practice Systems NZ Limited were transferred to MYOB New Zealand Ltd.

In November 2001, stiff competition and limited growth prompted MYOB to sell its MYOB Canada business to Edmonton, Alberta-based Intuit Canada Ltd. in a $9.1 million deal. Intuit published a number of popular accounting software applications, including Quicken, QuickBooks, and QuickTax.

There was much cause for celebration in March 2002, when Australia’s Supreme Court of Victoria ruled in favor of MYOB in a legal dispute with the Australian Securities and Investments Commission (ASIC). In 2000, the ASIC had charged MYOB with not properly applying accounting standards to its financial statements in relation to corporate restructuring activities in April 1999.

Expansion efforts continued in 2002, with the formation of MYOB Mexico S.de R.L. DE C.V. on June 28. The company ended that year on a financial high note. Operating earnings before tax, interest, depreciation, and amortization increased 70 percent from 2001, reaching $26.1 million, and operating revenues increased 20 percent, totaling $75.8 million.

In March 2003 MYOB agreed to acquire NZA Gold Ltd., a software enterprise serving small and midsized businesses in New Zealand. The deal built upon MYOB’s existing leadership position in New Zealand in the category of accounting practice software. This was followed by the acquisition of a 12.7 percent stake in rival Solution 6 Holdings Ltd., from Telestra Corporation, in June. The $16.67 million deal followed unsuccessful merger talks between MYOB and Solution 6 in late 2002.

About one year after buying into Solution 6, MYOB and the company agreed on terms for a friendly merger. The complex deal, valued at $233 million, included a capital return arrangement that called for Solution 6 to distribute 20.7 cents per share in surplus cash to its shareholders, after which MYOB would offer 0.55 of its shares for each share of Solution 6 that it did not already own.

The deal, which created a company worth $435 million, was approved by Solution 6’s shareholders on July 27, 2004, and was approved by Australia’s Federal Court on August 2. As part of the merger, Solution 6’s professional and enterprise businesses were sold to Francisco Partners, a U.S. investment group, for $34 million.

KEY DATES

1991:: Craig Winkler and Brad Shofer form Data-Tech Software; Data-Tech secures the rights to adapt versions of TeleWare software, M.Y. O.B., for the Australian and New Zealand markets.
1995:: Data-Tech changes its name to MYOB Australia.
1996:: MYOB acquires BestWare (formerly Tele-Ware) and secures all rights to MYOB; MYOB Ltd. is formed with operations in the Asia Pacific region, Europe, and North America.
1999:: MYOB is listed on the Australian Stock Exchange.
2004:: MYOB merges with competitor Solution 6 in a $233 million deal.

Following the merger, CEO Craig Winkler indicated that the combined firms would continue to operate as MYOB, and that the Solution 6 name would eventually disappear. The Solution 6 acquisition gave MYOB about 480 additional employees, as well as new assets in the area of accountancy software and some 20 years of related knowledge and experience. Winkler revealed that MYOB would use these new resources to help improve connections and relationships between accountants and small business owners.

MYOB ended 2004 by selling several of the businesses that it acquired as part of the Solution 6 deal. Specifically, Pollak Learning Alliance Pty. Ltd. was divested on November 1, and Network Integration Services Ltd. was sold on December 20. The year ended with Craig Winkler being chosen as the national winner of the 2004 Ernst & Young Entrepreneur of the Year Award, in the Technology, Communications, and E-Commerce category.

In early 2005 Craig Winkler, Christopher Lee, and Brad Shofer held their shares in the company through an investment arm named Solwood Lane Pty. Ltd. In March the trio, which held a collective 38.6 percent stake in MYOB, sold 40 million shares (10.4% of the company’s issued capital) through Macquarie Equity Capital Ltd. for $1.05 per share. The main reason for the sale was to allow Shofer, who had resigned as a non-executive director of MYOB on May 1, 2004, to cash out a portion of his ownership stake. After the sale, Winkler’s stake in MYOB stood at 20.1 percent, followed by Shofer (8.1%) and Lee (1.2%).

MYOB acquired stakes in or formed ventures with several other firms in 2005. Bolstering its position as a leading supplier of software to midsized companies in New Zealand and Australia, in June MYOB acquired a 35 percent interest in the distributor NetReturn for $7 million. This was followed by the acquisition of a 16.3 percent share in Malaysia’s UBS Corp. Berhad, a small business accounting software firm, for $4.5 million. In October MYOB increased its existing 30 percent stake in Exonet New Zealand Ltd. to 75 percent.

In November 2005 a joint venture named Zhi Guan Technology was formed with the Chengdu, China-based software company Jin Cai. MYOB spent $2 million for a 95 percent stake in the operation, which allowed the company to expand into mainland China. Finally, in late November the company announced that its sales and marketing operations in the United States were being sold in a management buyout.

In August 2006 MYOB acquired Comacc Ltd., a New Zealand-based provider of people and payroll management software for small and midsized businesses, in a NZD 7 million deal. This was followed by the acquisition of DOSH Software Ltd., an accounting software supplier in the United Kingdom. MYOB ended the year with revenues of $182.3 million, up 13 percent from 2005, and net profit of $17.3 million, an increase of 5 percent.

Growth continued into 2007 when MYOB assumed full ownership of Exonet New Zealand, acquiring the 25 percent share of the company it did not already own for NZD 3.3 million. By this time, the company enjoyed a customer base of some 500,000 businesses and more than 10,000 accounting firms throughout the world. Following 16 successful years, the outlook for MYOB was positive as the company moved into the last half of the first decade of the 2000s, with future growth expected from the company’s operations in China, which were expected to become profitable in 2009.

Paul R. Greenland

PRINCIPAL SUBSIDIARIES

MYOB Australia Pty. Ltd.; MYOB NZ Ltd. (New Zealand); MYOB Technology Pty. Ltd.; MYOB UK Ltd. (United Kingdom); MYOB US Inc. (United States); MYOB Asia Sdn. Bhd. (Malaysia); MYOB Singapore Pte. Ltd. (Singapore); MYOB Hong Kong Limited (Hong Kong); Solution 6 Holdings Pty. Ltd.; Solution 6 Pty. Ltd.; Solution 6 UK Ltd. (United Kingdom); Solution 6 (Systems) Ltd. (Ireland); Solution 6 Sdn. Bhd. (Malaysia); Solution 6 Pte. Ltd. (Singapore); Solution 6 Ltd. (Hong Kong).