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MARKET COMMENT
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I've admired Sage (LSE: SGE) for a long time. Arguably it's the UK's best software company. It's certainly been one of the most successful. But yesterday Microsoft (Nasdaq: MSFT) upped the stakes in the market for small businesses. It bought Great Plains Software (Nasdaq: GPSI), one of Sage's rivals in the US for $1.1b. If I was a Sage shareholder I would be concerned. Sage has made great strides by buying up competitors in a fragmented market. It has managed to steer clear of the large company end of the industry dominated by players such as Oracle (Nasdaq: ORCL) and SAP. But now Microsoft is knocking at the door and it isn't renowned for waiting to be asked inside. With concerns about slowing desktop sales it is looking for new avenues of growth and it views the enterprise solution market as one of most attractive streets in town. Sage is valued at 50 times profits for the year just completed and is expected to grow at 20% for the next couple of years. That's a lot less than its valuation earlier this year but it still leaves little room for disappointment. Strangely enough the Sage share price hasn't really reacted to this news. It even moved a bit higher for a time yesterday. There have been long-running rumours that Sage might be bought by Microsoft. That could still happen, of course, but it looks like investing in Sage is now a far, far riskier proposition than it once was. Where Next?
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