Marketing deals rise, once again, on Marketo

by Scott Denne

Marketo has now twice driven marketing tech M&A to new heights. Adobe’s $4.8bn acquisition of the marketing automation vendor pushes the total value of marketing deals past its previous record, set in 2016, a year when Vista Equity Partners’ $1.8bn take-private of the same company was the largest transaction in the category. Although only a year separates those record runs, the motivations of the largest buyers in each year are far apart.

According to 451 Research’s M&A KnowledgeBase, $13.2bn worth of marketing software and services companies have been acquired this year, already well above 2016’s $8.6bn. A surge of private equity buyers paying healthy multiples propelled the latter year’s total – the second-largest marketing tech deal that year was EQT’s $1.1bn purchase of Sitecore. This year, it’s strategic buyers looking to play defense that’s driving up the total.

Take ad agency Interpublic, which spent $2.3bn for Acxiom’s marketing database services business to fend off the consulting shops and SIs that are pouring into advertising as the market goes digital. Similarly, AT&T’s $1.6bn acquisition of AppNexus makes up part of the telecom giant’s plan (along with its pickup of Time Warner) to keep from being just a pipe for Amazon, Facebook, Google and Netflix.

In Adobe’s case, reaching for Marketo seems motivated by its increasing competition with Salesforce. Adobe could have outbid Vista Equity back in 2016 for less than the roughly 12x trailing sales it’s paying today. (Vista paid 7.9x in that earlier transaction). Owning Marketo provides Adobe with a defense against Salesforce’s historical strength among B2B firms. In a similar vein, Adobe’s $1.7bn purchase of Magento in May seemed a strike at Salesforce’s earlier acquisition of Magento rival Demandware and also came at an uncharacteristic valuation (11.2x). Prior to those two most recent deals, Adobe had only once paid more than 8x for a vendor with at least $10m in revenue.

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GoDaddy courts mom and pop 

Contact: Scott Denne

Like most tech M&A denizens, GoDaddy slowed its dealmaking in 2017. This year, it’s getting back into the market with an early, substantial purchase, spending $125m for social marketing services provider Main Street Hub. The acquisition, its second-largest to date, comes as GoDaddy must transition beyond its reliance on domains by upselling more software and services to each of its accounts.

According to 451 Research’s M&A KnowledgeBase, GoDaddy averaged four acquisitions in the four years leading up to 2017. Last year, it printed just one. In fact, it was just as often on the sell-side as it divested PlusServer, the managed hosting business it obtained as part of its 2016 Host Europe buy. Relatedly, it shuttered its cloud server business around the same time to focus on its small business market to maintain its growth.

Today’s deal aligns with that focus. Main Street Hub runs a service that helps small, local businesses build, maintain and monitor their social media presence. GoDaddy’s approach to landing small business customers is to lead with its domain name service and then attach software to that, such as its recently launched website builder GoCentral and its email service, email marketing and WordPress hosting.

Choosing a tech-enabled service or another SaaS offering gives GoDaddy’s customers the ability to manage their brand across a range of digital properties – Yelp reviews, Google listings, Facebook pages, TripAdvisor profiles, and so on. A single software tool would likely be too time-consuming or limited in scope to be of use to resource-constrained small businesses. Generating more revenue from those customers gains increasing importance for GoDaddy this year as it expects the roughly 10% annual expansion of its core domain business to decelerate.

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A pause in Big Software’s ‘SaaS grab’

Contact: Brenon Daly

After years of trying to leap directly to the cloud through blockbuster acquisitions, major software vendors have been taking a more step-by-step approach lately. That’s shown up clearly in the M&A bills for two of the biggest shops from the previous era trying to make the transition to Software 2.0: Oracle and SAP.

Since the start of the current decade, the duo has done 11 SaaS purchases valued at more than $1bn, according to 451 Research’s M&A KnowledgeBase. However, not one of those deals has come in the past 14 months, as the two companies have largely focused on the implications of their earlier ‘SaaS grab.’

During their previous shopping spree for subscription-based software providers, Oracle and SAP collectively bought their way into virtually every significant market for enterprise applications: ERP, expense management, marketing automation, HR management, CRM, supply chain management and elsewhere. All of the transactions appeared designed to simply get the middle-aged companies bulk in cloud revenue, with Oracle and SAP paying up for the privilege. In almost half of their SaaS acquisitions, Oracle and SAP paid double-digit multiples, handing out valuations for subscription-based firms that were twice as rich as their own.

In addition to the comparatively high upfront cost of the SaaS targets, old-line software companies face particular challenges on integrating SaaS vendors as part of a larger, multiyear shift to subscription delivery models. Like a transplanted organ in the human body, the changes caused by an acquired company inside the host company tend to show up throughout the organization, with software engineers re-platforming some of the previously stand-alone technology and sales reps having their compensation plans completely overhauled.

The disruption inherent in bringing together two fundamentally incompatible software business models shows up even though the acquired SaaS providers typically measure their sales in the hundreds of millions of dollars, while SAP and Oracle both measure their sales in the tens of billions of dollars.

For instance, SAP is currently posting declining margins, an unusual position for a mature software vendor that would typically look to run more – not less – financially efficient. But, as the 45-year-old software giant has clearly communicated, the temporary margin compression is a short-term cost the company has to absorb as it transitions from a provider of on-premises software to the cloud.

Of course, the transition by software suppliers such as Oracle and SAP – painful and expensive though it may be – simply reflects the increasing appetite for SaaS among software buyers. In a series of surveys of several hundred IT decision-makers, 451 Research’s Voice of the Enterprise found that 15% of application workloads are running as SaaS right now. More importantly, the respondents forecast that level will top 21% of workloads by 2019, with all of the growth coming at the expense of legacy non-cloud environments. That’s a shift that will likely swing tens of billions of dollars of software spending in the coming years, and could very well have a similar impact on the market capitalization of the software vendors themselves.

Internet Brands pays healthy premium for WebMD in otherwise ailing internet M&A market

Contact: Scott Denne

Private equity firms seem to be the only ones browsing for big consumer internet deals these days. Today’s acquisition of WebMD by Internet Brands marks the third billion-dollar purchase of a consumer internet company this year. The acquirers in those other deals, like KKR-owned Internet Brands, are also backed by PE firms.

Internet Brands’ $2.8bn acquisition of WebMD fits in the strategy, although not scope, of its past acquisitions. Since its days as Carsdirect, the company has rolled up 63 internet businesses across automotive, fashion and healthcare. Although the deal sizes of those were largely undisclosed, sites like dentalplans.com and racingjunk.com didn’t have the scale or notoriety of WebMD, and were certainly smaller deals – even Internet Brands itself was reported to have traded to KKR at just over $1bn in 2014.

In landing its biggest prize, Internet Brands paid a healthy valuation. At $66.50 per share, the deal prices the target company’s stock at a record level for the current iteration of WebMD (since its founding in the heyday of the dot-com bubble, WebMD has been through a couple of reorganizations, but has been trading on the Nasdaq since 2005). The acquisition values it at 3.9x trailing revenue, two turns above what Everyday Health – a competing health site that’s about one-third the size – took in its sale to j2 in 2016.

And while WebMD fetched a premium compared with its closest competitor, when compared with the broader market, it falls just shy of the 4.3x median multiple for similarly sized consumer internet deals across the last decade. As private equity firms account for an outsized amount of the consumer internet M&A market, premium valuations become harder to find. According to 451 Research’s M&A KnowledgeBase, $2 of every $3 spent on M&A in this category this year has involved a PE firm or PE-backed buyer, yet none of the $1bn-plus consumer internet deals this year – Bankrate, Chewy and WebMD – printed above 4x.

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Soft start to sales-enablement M&A 

Contact: Scott Denne

Startups developing sales-enablement software have been the targets of a recent spate of acquisitions after indulging in readily available venture capital for the burgeoning category. But the early deals appear modest and bigger exits still seem a ways out.

Among the startups in this category, three have sold in the past two months – all of them with modest headcount after several years in the market, suggesting equally modest growth. Two of those, KnowledgeTree and Heighten Software, were lightly funded. The third, ToutApp, raised $20m, making it more representative of the two dozen or so venture-backed startups selling software that enables sales teams to automate processes, share content and analyze their pipelines.

Gobs of venture money combined with an early, confounding market has meant that revenue traction comes via cash-burning investments in evangelism and marketing. Such a situation isn’t likely to draw the most natural acquirers – the largest CRM companies (Salesforce, Oracle and Microsoft) that today address the nascent need for sales enablement mainly through their app stores.

When other categories of sales software have come into their own, those would-be buyers made big purchases. Take configure, price and quote (CPQ) software: both Oracle and Salesforce inked nine-figure acquisitions in that sector. But sales enablement hasn’t yet become as widely embedded into sales workflow as CPQ, so there’s little motivation for CRM vendors to make a strategic-sized investment in a sales-enablement startup until those offerings gel into an obvious complement (or threat) to CRMs.

Still, there’s potential for a steady stream of modest exits for sales-enablement providers. As Marketo did with ToutApp, other B2B marketing software companies could look to this category to build products that connect marketing and sales processes. Likewise, vendors in enterprise content management, file sharing, conference calling and collaboration could reach into this category for software to target a key vertical.
Source: 451 Research’s M&A KnowledgeBase

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Paying for performance: Dentsu picks up its M&A pace 

Contact: Scott Denne 

Dentsu hasn’t been very active in acquiring digital marketing shops until recently. Now, as it sees an opening with marketers looking to change how they compensate their agency partners, it is moving fast to take advantage. The company announced today the purchase of India-based SVG Media Group, the latest in a string of deals it has made to expand its performance advertising capabilities.

According to 451 Research’s M&A KnowledgeBase, Dentsu has acquired 29 companies since the start of 2016. That’s the same number of tech businesses it bought in the previous 13 years combined. A combination of rising ad fraud and displeasure at opaque agency billing practices, mixed with the growing ability to link media spending to specific outcomes, has marketers rethinking how they pay ad agencies. They are placing more emphasis on performance-based pricing models, a notable departure from the historic practice of paying agencies a percentage of advertising budgets.

SVG Media fits into this role, as it sells pay-for-performance media services and ad networks. Earlier this month, SVG reached for conversion optimizer Leapfrog Online and customer analytics firm DIVISADERO, a bolt-on to the $920m it spent last year to snag CRM agency Merkle.

Although Dentsu may be an extreme case, it is part of an overall rise in acquisitions of digital agencies. Last year saw a record 164 digital agencies acquired. The pace so far this year is a bit below that, but well ahead of any other year. The drive for performance-focused digital marketing accounts for a substantial chunk of that upswing, although there are other factors such as the lack of mobile specialists and the movement of ad spending toward digital channels. Dentsu and other ad agencies aren’t the only buyers here. Consulting firms like Accenture and IBM have been inking acquisitions to capitalize on the same weakness.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

E-commerce’s discounted disruptors

Contact: Brenon Daly 

For the second time in as many weeks, a would-be digital disruptor of the commerce world has been snapped up on the cheap by an analogue antecedent. After the closing bell on Monday, sprawling marketing giant Harland Clarke Holdings, the owner of a number of advertising flyers that clutter postal boxes and newspapers, said it would pay $630m for online coupon site RetailMeNot. The amount is just one-quarter the price Wall Street had put on the company three years ago.

The markdown on RetailMeNot comes just days after Samsonite gobbled up eBags, a dot-com survivor that nonetheless sold for a paltry multiple. The $105m acquisition is supposed to help the world’s largest maker of luggage sell directly to consumers. Samonsite, which traces its roots back more than a century, certainly didn’t overpay for that digital know-how. Its purchase values eBags at just 0.7x trailing sales.

While a bit richer, RetailMeNot is still only valued at 2.25x trailing sales and 2x forecast sales in the bid from Harland Clarke. And that’s for a sizable company that’s growing in the low-teens range (eBags is about half the size of RetailMeNot but is growing at twice that rate). The valuations paid by the old-world acquirers of both of these online retail startups were clearly shaped more by the staid retail world than the supercharged multiples generally paid for online assets. It’s a reminder, once again, that disruption – that clichéd goal of much of Silicon Valley – doesn’t necessarily generate value. Sometimes trying to knock a market on its head just gives everyone involved a headache.

Salesforce: Try before you buy

Contact: Brenon Daly

When it comes to M&A, Salesforce likes to go with what it already knows. More than virtually any other tech firm, the SaaS giant tends to acquire startups that it has already invested in. Overall, according to 451 Research’s M&A KnowledgeBase, Salesforce’s venture arm has handed almost one of every five deals to the company. Just this week, it snapped up collaboration vendor Quip – the eighth startup backed by Salesforce Ventures that Salesforce has purchased.

For perspective, that’s twice as many companies as SAP Ventures (or Sapphire Ventures, as it has been known for almost two years) has backed that have gone to SAP. (We would note that the parallel between SAP/Sapphire Ventures and Salesforce Ventures doesn’t exactly hold up because the venture group formally separated from the German behemoth in January 2011.) Still, to underscore SAP/Sapphire Ventures’ nondenominational approach to investments, we would note that archrival Oracle has acquired as many SAP/Sapphire Ventures portfolio companies as the group’s former parent, SAP, according to the M&A KnowledgeBase.

Salesforce’s continued combing through its 150-company venture portfolio comes at a time of uncertainty and a bit of anxiety about the broader corporate venture industry. It isn’t so much directed at the well-established, long-term corporate investors such as Salesforce Ventures, Intel Capital, Qualcomm Ventures or Google’s investment units. Instead, it’s the arrivistes, or businesses that have hurriedly set up investment wings of their own over the past two or three years as overall VC investment surged to its highest level since 2000. (They seem to have been infected with the very common Silicon Valley malady: Fear of Missing Out.) It’s hard not to see a bit a froth in the corporate VC market when Slurpee seller 7-Eleven launches its own investment division, 7-Ventures.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Nuance voices desire to expand in customer service with TouchCommerce buy

Contact:  Scott Denne Sheryl Kingstone

Nuance Communications breaks a two-year M&A dry spell with the $215m purchase of TouchCommerce. Building off its earlier acquisitions of Varolii and VirtuOz in 2013, today’s announcement gets Nuance deeper into the customer service segment with analytics software and tools for both self-service and agent-assisted service via multiple mobile and desktop channels.

Amid flat revenue and a cost-cutting program, Nuance hadn’t announced a new acquisition since its tuck-in of document software provider Notable Solutions in July 2014. In previous years, it directed some of its M&A spending toward customer service, although most went toward building out its medical transcription division – its largest business and one that declined slightly through its last fiscal year and the first two quarters of its current one.

Nuance isn’t the only one increasing its investments in customer service. According to 451 Research’s M&A KnowledgeBase, acquirers have spent $1.4bn on that category so far in 2016, putting it on pace to be the second-largest year on record. Our data suggests that the investments, particularly in mobile-heavy players like TouchCommerce, is warranted. According to a recent 451 Research Voice of the Connected User Landscape survey, 37% plan to deploy customer self-service capabilities over the next 24 months.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

A fast-growing market for marketing software

Contact: Scott Denne

Marketing software M&A is surging through the first half of the year. In the first two quarters of 2016, spending on marketing acquisitions reached $4.2bn, putting this year on pace for a category record, according to 451 Research’s M&A KnowledgeBase. In no small measure, the boom is being fueled by private equity (PE) firms. Already this year, financial sponsors have spent $3bn on vendors in this space. That’s triple last year’s total, a level that itself was more than the cumulative total of the previous seven years.

Uncharacteristically, the PE deals have also carried the highest multiples. Vista Equity Partners’ $1.8bn take-private of Marketo valued the target at 7.9x trailing revenue – higher than any other marketing target with over $10m in sales. EQT’s $1.1bn purchase of Sitecore was the third-highest multiple at 5.2x. (Telenor’s pickup of ad-tech firm Tapad was the second-highest.)

The companies garnering the lowest valuations were those providing marketing software for small businesses. In late June, ReachLocal sold to Gannett for just $156m, or 0.4x, following a painful restructuring to focus on more profitable SMB accounts with a larger suite of products to entice them (the firm was built around search engine marketing software). Its competitor Yodle fared just a bit better, selling for $342m, or 1.6x, as slowing growth set up obstacles to a public offering.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.