What's the Playbook for $Billion-Plus Martech Private Equity Acquisitions?
Billion-dollar marketing technology acquisitions by private equity firms can change a company's landscape, naturally, and potentially affect product roadmaps. For example, Marketo was acquired by Vista Equity Partners in 2016 for $1.65 billion then two years later was acquired by Adobe for $4.75B.
Martech has certainly had its share of these investments in the past three years. Just ask Sitecore, Episerver and IBM, the former two acquired by private equity firms, and the latter sold off its marketing software to an investor. “The real lesson learned is that profitable companies that seek outside capital from investors are on a much shorter leash than most,” Scott Liewehr, founder and CEO of Digital Clarity Group, said of recent Sitecore layoffs.
What has been happening at some of those companies that had private-equity takeovers in the past few years? We caught up with officials from IBM, Episerver and Sitecore and others about technology roadmaps and other issues that matter to customers.
Lots of PE Martech Takeovers Since 2016
But first, the facts. Here’s what’s happened since 2016 for major takeover news in this space:
- April 2016: EQT acquires Sitecore for $1.14 billion
- May 2016: Vista Equity Partners acquires Marketo for $1.65 billion
- Sept. 2018: Adobe’s $4.75B acquisition of Marketo
- Sept. 2018: Insight Venture Partners acquires Episerver for $1.16B
- April 2019: Centerbridge Acquires IBM Marketing, pricing undisclosed
IBM: Two Martech Sellouts in Two Years
IBM represented the most recent marketing technology exchange into private hands. Centerbridge Partners announced a definitive agreement in April this year to acquire IBM’s marketing platform and commerce software offerings. Three months later, Centerbridge debuted the offerings as “Acoustic,” what officials called an open technology ecosystem that connects data customer analysis.
IBM officials naturally put a positive spin on things, but this was the second time in six months IBM sold off marketing software. IBM in December of 2018 also sold on-premises and single-tenant hosted technologies to HCL for $1.8 billion. Among the marketing software included were Unica (on-premise) for marketing automation, Commerce (on-premise) for omni-channel ecommerce and Portal (on-premise) for digital experience.
“Martech is a huge commitment,” Forrester analysts Joe Stanhope and Rusty Warner blogged after the Centerbridge deal. “IBM’s decision provides further evidence of the substantial investments required to deliver martech innovation. It’s difficult — and expensive — to acquire martech components, assemble a viable enterprise marketing software suite (EMSS) portfolio, continuously develop best-in-class capabilities and commercialize offerings in a crowded and competitive marketplace.”
Related Article: The 5 Biggest Martech Acquisitions of 2018
Acoustic to Customers: We Hear You
What has been the message to customers of IBM Watson Marketing who were affected — again — when Centerbridge/Acoustic entered the picture? “The message we have sought to make clear to our customers is this: we hear you,” said Michael Trapani, director of marketing for Acoustic. “We know you’ve had to settle for mediocre, disconnected tools and we chose to become a stand-alone company because we understand that marketing and advertising can be better.”
Centerbridge’s investment will “free marketers from the fragmented processes and siloed technology they’ve been forced to work with,” Trapani added. All IBM Watson Marketing products transferred to Acoustic, without any break in service, he said.
Aggressive Product Roadmap for Acoustic
Acoustic has an “aggressive product roadmap” and wants to improve how users connect their various tools in an open ecosystem. It’s also creating more user groups, revamped customer communities regular events and a new annual customer conference. “How we plan to use AI is a common question from our customers,” Trapani said. “Acoustic is leveraging Watson AI in the same ways we used Watson’s API within IBM. Not only will our use of Watson AI continue, but as a standalone company, we have new opportunities to invest in organic AI.”
IBM partnered with Centerbridge because of its belief in long-term creation of value. “They are completely aligned with our mission of empowering marketers to do brilliant work by providing purpose-built, AI-powered marketing on an open platform,” Trapani said. “They’re investing in Acoustic because they believe there is a void in the market that needs to be served.”
Related Article: Centerbridge Debuts Acoustic, Amperity Nets $50M and More CX News
Sitecore CMO: EQT Invests in Growth Opportunity
We’re guessing Sitecore had some customer inquiries this month regarding its layoffs. Whether that’s a harbinger of more changes in staff or the preparation for another sale is anyone’s guess now.
Paige O’Neill, Sitecore’s chief marketing officer, caught up with CMSWire before the reported layoffs on the subject of Sitecore’s EQT takeover in 2016. (A Sitecore spokesperson said when asked by CMSWire about the layoffs, "Recently, we realigned resources in a few areas of our business to better map the right mix of investments to our strategic growth areas. We are business as usual, coming off of a year of double-digit growth and investment in FY19 and we are excited about FY20.")
“The kinds of questions that tend to come from customers is they want to know that nothing is going to change,” O’Neill said when asked about private equity acquisitions. “Essentially, that's what they're looking to assure themselves, because they probably have made an investment in the company, and they've got their customers; they've got their technology. And they're looking to confirm continuity, everything from roadmap to the team that they're working with.”
In Sitecore’s case, EQT saw a significant opportunity to continue Sitecore's growth trajectory. The digital experience provider reported more than 35% growth in annual recurring revenue in fiscal year 2018 and also reported year over year gains in the recently ended fiscal year 2019, according to their own reports (Sitecore is not a publicly-traded company). Back in 2015, it reported five straight years of growth. “So they were looking at it from a standpoint of how do we make significant investments to continue Sitecore on its growth path,” O’Neill said.
Investor Sped Up Sitecore's Product Roadmap
O'Neill added EQT’s investment “sped up our roadmap to machine learning and AI,” she said. “Those are innovations that certainly would have been on a much slower timeframe, if we hadn't had EQT around.”
It also accelerated Sitecore’s cloud strategy and led to the acquisition of StyleLabs, which added digital asset management and content operations which “dramatically expanded our product portfolio. It entered us into a conversation about content that we just didn't have before because we've got a whole new suite of products that are aligned to that marketplace.”
Related Article: Sitecore Lays Off a Reported 70 Employees
Episerver: Tale of Two Acquisitions
Justin Anovick, chief product officer at Episerver, said his company went through two very different private-equity takeovers in recent years. In January of 2015, Accel-KKR, the private equity firm that closed 2014 by buying Stockholm-based Episerver and Nashua, N.H.-based Ektron, combined the two web content management systems (CMS) under the Episerver name to "create the most complete digital experience platform in the cloud." “Accel-KKR had a playbook: this is what we do with acquisitions,” Anovick said. “Here are 10 common steps that we use for any company that we acquire. And they work through those steps, whether it is buying another company, acquiring to increase your footprint, investing more in the technology, investing more in sales and marketing.”
Insight Ventures, which acquired Episerver in 2018, works hands on with Episerver and has officials with experience in marketing. They “co-develop” the playbook using resources within Episerver. Insight Ventures has focused on increasing spend on product development, Anovick added. It’s an indication —and assurance to customers — how much Episerver plans to develop the product and its commitment to its product.
Product advancements in content recommendations and analytics were a direct result of Insight Ventures’ investment, Anovick said. “We would never have been able to build those because the amount of capital available was just not there,” he said. “... Our goal is to build upon commerce and CMS. CMS is a huge, really important piece for us. And we want to continue to build up those capabilities."
Do PEs Have a Hidden Playbook?
So what’s next for these martech companies? The bottom line depends on the PE firm, according to R Ray Wang, principal analyst and co-founder of Constellation Research. Most PE firms like to apply their formula for returning shareholder value, he said.
According to Wang, they typically start with some promises that may have underlying meaning:
- "We can do less things more effectively." Translation: we reduce the number of development projects from 10 to three, and we can put more resources on three projects, but we reduce headcount by 33%
- "We reduce marketing spend to 5% to 7% of revenues." Translation: we can put that money to better use on demand generation and less on brand. BTW, we’ll put our conference in crappy venues that no one likes.
- "We will add more sales people to improve customer service." Translation: expect to be audited more.
- "We are consolidating our headquarters." Translation: We found a low-cost city that we can hire folks who are afraid to leave because they can’t find another good tech job.
“Companies often slim down before recapitalization, merger or sale,” Wang added.
Martech Companies Under ($Billion) Pressure
Bottom line? Things can get pretty cutthroat when an investment firm goes all in and makes a technology company a unicorn. Customers have to recognize nothing’s off the table. Marketo had a major executive shakeup after its $1.16B acquisition by Vista Equity Partners, and that was before Adobe's acquisition.
“When a private equity firm gives an already-profitable company money on the prospect that they’re going to be acquired or grow to make even more money, the acquirer is in it for one thing. You guessed it: money,” Liewehr said. “And when the acquirer pays over $1B, the pressure on the acquired company to perform is astounding.”