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State of the Art Deal

Irvine Software Firm at Top of Its Game Is Sold


IRVINE — Accounting software maker State of the Art Inc. said Tuesday that it is being bought for $263 million in cash by a rival based in the United Kingdom.

The Sage Group PLC, the European leader in accounting software for small- to mid-sized businesses, will pay $22 a share--or 33% more than Monday's closing price of $16.50--for the Orange County firm.

Wall Street embraced the news, pushing the company's stock up 31%, or $5.19 a share, to $21.69 on the Nasdaq market. More than 3.2 million shares changed hands, compared with the average volume of just under 83,500 shares.

The deal, which has been in the works since December, will transform State of the Art into a wholly owned division of Sage. It was uncertain whether the Irvine company, which develops mid- to high-range accounting programs, will take on the Sage corporate name.

State of the Art, which has 400 employees, including 280 in its Irvine headquarters, does not expect any layoffs, said David W. Hanna, chief executive officer.

"We've been looking for an international partner for a very long time because we need someone to localize our software and help distribute it outside the U.S.," Hanna said.

Sage will begin a cash tender offer within five business days and must receive commitments for at least 90% of State of the Art shares for the deal to be completed. Sage, which is listed on the London Stock Exchange, plans to raise the money for the buyout through a new stock offering and bank loans, officials said.

The announcement was hailed by analysts, who said the merger will allow both companies to expand into new markets and round out their product lines.

"State of the Art was looking toward a very bright future, so I would have liked to have seen them get a couple bucks more than they did [from Sage]," said Robert Kugel, a software industry analyst with FAC Equities/First Albany Corp. But he added: "This is definitely good news for both companies."

Founded in 1981, State of the Art struggled during the early 1990s because of sluggish sales of existing programs and delays in getting new products to market. During the past several years, it has expanded through acquisitions and by broadening its product line.

Like State of the Art, other players in the accounting software world faced similar problems throughout the earlier part of the decade, say industry watchers.

But the business is now primed for explosive growth, as more accounting firms use and upgrade their computer technology, according to observers.

"The entire industry is really opening up with the middle and lower tiers of the accounting market," said Eric Upin, senior software analyst for BancAmerica Robertson Stephens. "All the conditions are coming together--the cost, the technology, the demand from customers--to awaken what has been a somewhat sleepy market."

Shortly after the deal was announced, State of the Art reported record earnings for both the fourth quarter and year.

Net income for the three months more than doubled to $3.9 million, or 33 cents a share, from $1.6 million, or 14 cents a share, for the same period a year earlier. Revenues rose nearly 35% to $21 million from $15.6 million.

For the year, net income rose to $6.5 million, or 56 cents a share, from $2.9 million, or 25 cents a share, for 1996. Revenue totaled $64 million, up 23% from $52 million.


State of the Art at a Glance

Headquarters: Irvine

Chairman/president/CEO: David W. Hanna

Business: Accounting software

Status: Public

Employees: 400

Exchange: Nasdaq

1997 sales: $64 million

1997 net income: $6.5 million

Purchase price: Approximately $263 million

Purchaser: Sage Group PLC


Top of the Market

How State of the Art and Sage Group's products ranked among accounting software products in 1996, the most recent year for which data are available (annual sales are in millions):


Market Sales share 1. Intuit Quickbooks for Windows $51.3 9.0% 2. Computer Associates -ACCPAC/2000 for Windows 48.2 8.4 3. Sage Group--Seari Accounting Software for Windows 46.4 8.1 4. Sage Group Sybel Accounting for Windows 31.4 5.5 5. Sage Group Sterling for Windows 30.7 5.4 22. State of The Art BusinessWorks for Windows 9.0 1.6 53. State of the Art BusinessWorks for DOS 1.7 0.3


Fine Financials

State of the Art's stock price has climbed more or less steadily since April and closed at nearly $22 Tuesday. Sales and earnings in millions and monthly closing stock prices:



4th qtr. $15.6


4th qtr. 21.0


Net Income


4th qtr. $1.6


4th qtr. 3.9


Stock Prices 1997

Jan. $13.88

Tuesday's close: $21.69

Source: Bloomberg News; Researched by JANICE L. JONES / Los Angeles Times

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