Deal Radar 2008: Sabrix

On our radar today is Sabrix, a transaction tax management provider. Based in San Ramon, California, Sabrix provides applications for businesses to calculate and manage their taxes. I have discussed the company’s combining domain expertise with technology before.

The company’s Sabrix Application Suite initially targeted Global 2000 companies. Directed at businesses that must calculate and report domestic sales and use tax and international VAT, the application, with the help of Sabrix’s SAS 70 certified Global Tax Research, monitors 13,253 tax authorities in the US and tax rules in 170 countries. The company recently included tax rules from India and Brazil. Amazon.com, Cisco, IBM, Hewlett-Packard and York International are just a few of its customers. In 2007, the General Electric Company also implemented the Sabrix Application Suite. The enterprise business of Sabrix is subscription revenue based and today comprises most of the company’s top-line, but new businesses and business models are also coming down the pipe.

In June 2008, the company released the latest version of its Sabrix Managed Tax Service (MTS). Introduced in 2007, the on-demand version of the application suite is aimed at small and mid-market companies looking to automate sales and use tax compliance. Sabrix MTS determines and calculates tax for every financial transaction, eliminating the need to manage tax schedules manually. The summer 2008 version extends its reach to businesses that need support for Canadian taxes. The new release helps financial executives responsible for compliance for all North American operations by eliminating hassles, reducing costs, and limiting their audit exposure for US and Canadian tax compliance.

According to Steve Adams, president and CEO, Sabrix MTS is available as a subscription service and has financial metrics similar to those of SaaS and on-demand companies. The uniqueness of MTS, however, is that it is not just a subscription-based SaaS offering, but rather a SaaS-enabled Business Process Outsourcing (BPO) service. Sabris MTS, in effect, becomes an extension of the finance departments of small to medium businesses and handles the entire sales tax processing and compliance function. Although MTS is a new business, Sabrix has already generated revenue in the millions from this effort.

In 2007, the company reported an 85% increase in customers and approximately 60% year-over-year growth to approach $30 million in revenue. Gross margin hovers in the 68-70% range, and the company will become profitable by the end of 2009.

Sabrix has raised about $50 million in funding: a $1 million Series A round raised in 2000; about $11 million in a Series B round from Mohr Davidow Ventures and Venture Strategy Partners in 2001; a B-1 round of $6.1 million added in 2002; $10.5 million in a Series C round from Trinity Ventures, Mohr Davidow Ventures and Venture Strategy Partners in April 2003; a $13 million Series D round from GKM investors, Trinity Ventures, Mohr Davidow Ventures and Venture Strategy Partners came in June 2006; and an internal E round of about $8 million added in October 2007.

I am a big fan of companies that focus on niche, but large markets that have large ROI characteristics. The reason I like Sabrix so much is that it can easily pay for itself at its customers by saving them taxes. All the nitty-gritties of tax laws in numerous countries are hard to manipulate and keep on top of, so Sabrix’s software offers the much-needed automation and scalability to the tax calculation process.

I am also enthusiastic about the company because of its innovative spin on the BPO model, to make it a SaaS-enhanced BPO, something which I have said all along that Indian outsourcers ought to consider. Sabrix, in my opinion, is the type of company that Infosys and co. should look to acquire.

This segment is a part in the series : Deal Radar 2008