After months of speculation, accounting software giant MYOB Group Ltd has finally lodged its initial public offer (IPO) prospectus with the Australian Securities and Investments Commission (ASIC), outlining its intentions to raise up to $833.8 million from retail and institutional investors.
MYOB's shares will relist on the ASX on 4 May, where a price somewhere between $3 and $4 per share will be announced on 1 May.
Giving investors a price range rather than an exact dollar figure was a method also used by Medibank Private Ltd (ASX: MPL) late last year, which received criticism due to the uncertainty caused regarding how many shares each investor would actually receive.
Nonetheless, MYOB will boast an enterprise value between $2.34-$2.69 billion while its shares will trade between 20.6 times and 24.9 times pro-forma net profit after tax and amortisation (NPATA). You can read more about the offer by clicking here.
Since lodging its 220-page document however, the group has come under heavy fire from New Zealand-based rival XERO FPO NZ (ASX: XRO), which has insisted that the prospectus does not contain sufficient information relating to its customer numbers.
As highlighted by the Fairfax press, Xero's founder Rod Drury was unhappy that MYOB failed to split up its customer numbers by product, while it also neglected to mention how many cloud-based customers it has in New Zealand. He argues that this does not provide prospective investors with enough information regarding MYOB's actual strength within the market.
In its prospectus, MYOB stated that it had 1.2 million customers for its small business software. Of those, 116,000 are paying users for its cloud-based software while 389,000 are paying desktop users. The remaining 716,000 customers are non-paying users, meaning that they do not pay ongoing maintenance fees.
Of course, it could also be argued that those non-paying users could be turned into paying users in the future which could generate huge amounts of cash for the business. Alternatively, some could argue that some of those customers may not even exist anymore.
Regardless, Drury believes that Xero, which is a pure cloud-accounting software provider, is doing far better in the New Zealand market than MYOB, while it is also quickly gaining traction in Australia. Fairfax quoted Drury as saying: "In NZ it is acknowledged Xero has won. If that is the case, investors will want to know if it is going to happen in Australia too. It is hard to know without breaking out the numbers."
Should you buy MYOB?
MYOB has grown strongly under the control of Bain Capital, which purchased the company in 2011 for $1.2 billion. However, investors need to be sceptical of whether that strong growth can continue long into the future.
As previously mentioned, Xero is also flexing its muscles and certainly looks to have gained the upper hand in many ways. As a perfect example, Motley Fool Pro analyst Matt Joass recently highlighted that Xero's Google search term popularity has surged past MYOB both in Australia/New Zealand, and on a worldwide scale, indicating great things to come for Xero.
Meanwhile, Xero is expanding into the UK and US while MYOB is more focused on the Australasian market.
Of course, investors need to establish for themselves whether an investment in MYOB is right for them and their own personal circumstances. It's also possible that MYOB could initially prove as popular, if not more popular, than Medibank Private when it first listed in November last year, generating investors a nice paper profit early in the keep.
However, there are strong signs that suggest the better investment is already trading on the ASX under the ticker code, "ASX:XRO". I already own shares in Xero and believe they are in a good position to continue delivering sustainable growth in the coming years. As such, it is unlikely that I will be participating in the MYOB IPO in May.
