IBM purchased SiliverPop recently for an undisclosed amount of cash. With annual revs hovering close to 100M for Silverpop, slightly more in 2014, I wouldnt be surprised if IBM paid a 10x multiple given the trajectory of the space which is expected to grow by 40% per year over the next 5 years. In this article, I will attempt to forecast where ensuing M&A activity will occur over the next 12 months.
Act-on enters IPO territory
Hot money continued to flow into the space, Act-On received a fifth round of funding worth an additional 42M, valuing the company well north of 100M. Act-On has now received over 74M in total funding. I think it’s valuation is much higher than that, which puts them in IPO territory.
But sales still are required to catch up. The monies of course will be used to grow sales and marketing staff to compete with cloud juggernauts, Oracle, Adobe and SalesForce. I do think Act-On should continue to focus on the middle markets however. That’s there sweet spot.
Marketing automation will grow into a $20 billion industry
In the coming months, more airtime in executive board meetings will be devoted to further accelerating M&A activity within cloud-based marketing, specifically in deployment models such as Email Service Providers and Marketing Automation Companies (ESPs/MACs).
According to a relatively recent Barron’s article, the marketing automation (MACs) segment of this market will become a $20 billion market segment. If history is any indication of the future, maturing ESPs and MACs will take the industry higher as more SMBs begin using marketing automation, which is exactly the market segment Act-On will begin to sell to.
Marketing Automation will morph into verticals
The deployment model will reach 30B by 2016 as new verticals, such as healthcare and manufacturing are introduced. By 2017 or sooner, the marketing automation industry will morph into industry-specific verticality, to mine richer data with further granularity in automated workflows. In order for verticality to resonate, specific industry experts must engineer these workflows to build deeper data sets for extreme behavioral insights. Today’s specific industry experts will be tomorrow’s account managers at ESPs/MACs.
Five ESPs in Play for Mergers and acquisitions
I will attempt to forecast where ensuing M&A activity will occur over the next 12 months. From six, I view now five ESPs/MACs as “in play” to be acquired by potential suitors, now that IBM has purchased SilverPop. NetSuite, and SAP are still in play to buy, and so is Microsoft and HP.
These four companies all want the same thing, and that is to enter the cloud computing race, specifically the marketing automation deployment model, for long-term sustained revenue growth. The same situation occurred numerous times in 2013, with Adobe buying Neolane, SalesForce purchasing ExactTarget, and Oracle swallowing both Eloqua and Responsys. You know the story.
When shopping for ESPs and MACs, it is critical to search out acquisitions that will complement their existing portfolios; searching and finding the right market segments is crucial. For example, does the ESP/MAC have a balanced portfolio of B2B and B2C clients? In today’s climate, we can identify segment dependency, which results in a more balanced portfolio for the suitor. It is important for potential buyers to consider how a given portfolio’s composition will mesh with the buyers strategic goals.
Acquisition of a mature ESP/MAC
For instance all four companies mentioned above believe that the cloud deployment model will pay dividends in a mobile environment. For SAP and other companies, a subscription based “deployment model” in the cloud means a more predictable earnings stream.
SAP’s goal is to earn 3B in cloud services revenues by 2017, which won’t happen without an acquisition of a mature ESP/MAC. I don’t see them growing their deployment model quick enough through organic means. If a buyer cannot find a single company with a suitable portfolio, another strategy is to acquire one or more ESPs/MACs with different characteristics to reduce or oust the competition.
Below is a brief overview of five +1 companies that are ready for acquisition, and how they might sync with the three major suitors looking to acquire.
At SailThru, based in NYC, Neil Capel and his team just received $20M in new Series C funding. The majority of their sends (deployments) are media focused, (b2c), so their portfolio has a large subscriber base. Their clients include Mashable, Huffington Post and Business Insider, just to name a few. SailThru can be a potential target for companies like SAP or Netsuite that want to beef up their cloud SaaS infrastructure.
However, because Netsuite’s wheelhouse is small to medium sized businesses, I don’t think a Netsuite/SailThru deal is in the works. Look for either HP or SAP as a potential suitor. Like most maturing MACs, they are experiencing high growth and estimated revenues of 50M in the next 18-24 months.
Recently, LiveIntent raised a fresh $20M in Series C funding as well. According to Dave Hendricks, “the email address unlocks the internet for customers.” LiveIntent merges programmatic ad buying and selling with email messaging. Currently, they serve several billion real-time ads per month and more than 3000 different email newsletters are tagged through LiveIntent, allowing for more comprehensive data continuum.
To date, more than 400 publishers and 500 advertisers are using their technology. Potential suitors for LiveIntent include Oracle, SAP, Adobe, EBay, Amazon, Saleforce and Workday. What distinguishes LiveIntent and makes them so appealing is that they are not competitive to any known platform to date. It’s good to be a unicorn.
Act-On Software was recently cited in the ForresterWave™ Lead-to-Revenue report as a leader in automation platforms for small marketing teams and large enterprises. With a 100M valuation and a fresh 42M to work with, there prime interest is to grow sales. While the majority of their customers are B2B based, I expect Act-On to build on its current momentum in 2014 and beyond.
They’re delivering about 500M emails per month, which isn’t a huge amount of volume, but their products and pricing models are perfect for the SMBs and mid-sized companies which is the next market segment that ESPs and MACs are attacking. Act-On’s 2,200 customers range in size from small and mid-size businesses to large enterprises, and span a multitude of verticals.
I think the goal for Act-On is to be purchased relatively soon, although an IPO is not necessarily out of the question. I don’t necessarily see an IPO happening with this company in the near future; rather, I see a merger with another ESP/MAC as more likely than a singular buyout by one of the three suitors. Look for Act-On to go on a buying spree for smaller ESPs and MACs here in the very near future.
Right now Marketo is the belle of the ball. Rumors have been swirling about a potential buyout target, and they recently showcased some incredible tools at their recent summit. NetSuite may be vying for Marketo. But I don’t see the fit there. Marketo’s sweet spot is SMBs in both the B2B and B2C space. Marketo’s revenues will be close to 150M in 2014. That’s a big number. They made some historic announcements at their summit last week that will reshape the automation space specifically for mid-market companies.
Realistically, that is the place to be if you were to start an ESP or MAC right now. Marketo has also distinguished itself as a leader in the healthcare vertical, which will be imperative to its future, given the size of the healthcare industry. For this reason, NetSuite is the more obvious choice to acquire Marketo. Netsuite’s sweet spot is the SMB space as well and the additional benefit of the healthcare vertical would make Marketo a healthy choice.
About a year ago, Infusionsoft raised an additional $54M in funding from Goldman Sachs for its SMB marketing automation investments. To date, they have raised a total of $71M. Specifically, the goal of Infusionsoft is not necessarily to get purchased, but to be around for a long time; to that end, it is considering an IPO. They cater to the SMB market, specifically to companies that have fewer than 25 employees.
Their SaaS platform automates the marketing tasks using SMS to capture leads then sends out automated emails on a scheduled basis, like most MACs. Infusionsoft is built to last and growing at 25-30% per year. This is a perfect partner for a company like NetSuite which is focused on the SMB market. Infusionsoft essentially consolidates platforms such as an ESP and CRM system and becomes a company’s all in one solution. This is valuable since most SMBs don’t have the resources to utilize disparate platforms.
SalesFusion just purchased LoopFuse in an undisclosed deal, although perhaps much of the 8.25M they received recently went to buy LoopFuse. While LoopFuse is a simpler version of cloud-based marketing automation companies, it does have social listening and publishing tools. Having said this, SalesFusion might be setting themselves up to be a target for Microsoft, who apparently wants in on the marketing automation sweepstakes. Having said that, Microsoft will probably want to see someone like Act-On by SalesFusion first.
SalesFusion’s deepest CRM integration is with Microsoft Dynamics, so that all makes sense. SalesFusion core focus is to focus on SMBs who strive to accomplish most automation tasks with “all-in-one” services as opposed to dealing with multiple platforms. In my opinion, with the acquisition of LoopFuse today, SalesFusion can be a buyout target for either Microsoft, or SAP. But, these buyers are looking for bigger for highly mature companies at this point. SalesFusion, would need to get another round of financing, grow their core business or think about getting purchased by a larger ESP or MAC.
Honorable Mention: Founded by Brian Halligan and Dharmesh Shah in 2006, Hubspot started with three customers. Today they have over 9,000 clients and a run rate of 60M or more. To date, the company has raised more than $130M in VC funding. One of the core tenets behind Hubspot’s growth is their exceptional ability to retain customers.
Hubspot’s current efforts are on international expansion; their first offices in Dublin opened early last year. HubSpot’s goal is not necessarily to get purchased. I think they are more focused on eventually evolving from private financing to public in the relatively near future. I don’t see them as a buyout target, but rather predict an IPO in 2015 or 2016. Fortunately for Hubspot, anything Mike Volpe is involved with usually turns to gold, as he’s one of the great marketing minds of our time.
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