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News & Analysis

Lee Prout, 17 December 2014

Copenhagen-headquartered SaaS accounting vendor e-conomic generates around 60-70% of sales directly through the company’s website, but also considers accountancy referrals as a significant sales channel, with firms such as BDO, Ernst & Young and KPMG endorsing its product. Interestingly, whilst the business expects to continue to generate significant levels of organic growth, e-conomic has turned to acquisitions under HgCapital, which according to 2013 accounts paid DKK761m (Circa £87m GBP1=DKK8.6) or 6.2x revenues to acquire the business in August 2013.

In terms of its product set, e-conomic sells its software on two subscription plans; one for up to 4,000 transactions per year at £20 a month; and one for an unlimited number of transactions at £35 per month. Aside from its core offering, e-conomic provides more basic invoicing and accounting platform called Debitoor to freelancers and small business, priced up to £10 a month. The business is headquartered in Copenhagen, but has additional small offices across Europe in Norway, Sweden, the UK, Germany, Spain, Poland, Finland and France. HgCapital acquired e-conomic in August 2013 for an undisclosed sum. However, the company’s 2013 accounts reveal that HgCapital paid DKK761.3m for the business, representing 6.2x current year revenues.

Under HgCapital, e-conomic has increased its focus on expanding across Europe through establishing partnerships in other European markets and investing more aggressively in development, sales and marketing. In line with its strategy e-conomic signed a joint venture agreement with Spanish business advisory firm CE Consulting Empresarial in September, which was shortly followed by the acquisition of Sweden-based SaaS accounting firm SpeedLedger, one month later. From a financial perspective, proforma accounts for the year to December 2013 show a 26% increase in revenues to DKK122m, but a move from an EBITDA profit of DKK17.2m to a loss of DKK1.6m, as a result of increased investment for further growth and the further development of e-conomic and Debitoor. In addition, e-conomic increased sales and marketing investment in the second half to support growth outside of Denmark.

Typical of an established SaaS business cash conversion was strong, with an inflow from operations of DKK4m, whilst e-conomic ended the year with a DKK16.2m cash balance. Looking ahead, e-conomic expects revenue growth to remain above 25% for the current year and beyond, helped by international expansion and investment into new markets.

First thoughts

Common themes across SaaS accounting vendors include the use of both direct and channel partner sales models, a tiered pricing strategy and integrations with other in-house and third party applications. Interestingly, however, there is a significant difference in regional growth strategies. Some are purely domestic, such as Kashflow (part of Iris) in the UK, some are concentrated on English speaking nations, such as Xero, whilst legacy vendors that have released SaaS solutions, including Sage and Intuit, are targeting regions where they already have an existing presence. In contrast to these, e-conomic’s strategy is more pan-European.

What makes e-conomic also stand out from the crowd is its focus on slightly larger organisations, which is reflected in a £35 a month subscription for its standard offering, compared to £20 for Xero, £13 for Quickbooks Online, £10 for Kashflow, £8 for SageOne. It is for these characteristics that we view e-conomic as one of the most differentiated and interesting SaaS accounting vendors on the market. Moreover, its recent corporate actions highlight the business as one of the first to look to consolidate the market, beginning with the Nordics. In that respect, it will be interesting to compare e-conomic’s acquisition activity with that of leading Norwegian enterprise software vendor and serial acquirer Visma, particularly as both businesses share a common private equity backer in HgCapital.

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