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Marketing software industry analysts said Marketo was ripe for acquisition — just not by a private equity firm.
San Francisco-based Vista Equity Partners confirmed yesterday that it plans to scoop up the San Mateo, Calif.-based marketing automation provider for $1.79 billion yesterday or $35.25 per share — a 9.5 percent premium to the company's previous day's closing price and 64.2 percent higher than the May 9 closing price of $21.47. Marketo share prices surged 25 percent May 10 on rumors of a possible sale, and have trended higher since.
In April, Vista paid a similar premium when it dropped $1.65 billion to acquire Tysons Corner, Va.-based Cvent, a cloud-based enterprise event management company.
But could there still be time for an alternate buyer like SAP, Microsoft, Adobe or even LinkedIn to make a play? Possibly, according to word on the street.
'Vista Specific Operational Improvements'
“I am bit surprised that it was a private equity (PE) firm rather than one of the big tech vendors — IBM, SAP, Microsoft — in the space,” said Cathy McKnight, co-founder and vice president of consulting and operations for New York City’s Digital Clarity Group. “With all that Marketo has going for it, the traditional PE play of ‘buy, fix, flip’ doesn’t seem to fit.”
McKnight pointed out that Vista boasts that it “continually identifies specific companies that can be acquired and transformed through the implementation of the Vista specific operational improvements.”
Looking at Vista's existing lineup, McKnight said some of its current workflow platform technologies might be able to help Marketo.
“But,” she added, “there doesn’t seem to be much in the way of similar tech to align or blend it with. They are actively acquiring tech in the marketing space, so this may just be the first part of a longer term plan.”
Worrisome to Customers?
The private equity acquisition could leave existing Marketo customers “scratching their heads,” according to R Ray Wang, principal analyst and founder of Silicon Valley-based Constellation Research.
“We knew they’d be acquired at some point,” Wang said, “but going private is very worrisome to customers.”
Wang added, “I know they got a good price, but now we’re worried for customers about prices going up."
Marketo officials, however, in a company FAQ blog post, emphasized there will be “no change whatsoever for customers. It is business as usual."
Marketo remains "deeply committed" to delivering on its strategic product roadmap and current and future customer commitments, and all services for customers remain right in place, they claim.
"Vista, like Marketo, is a bold innovator and a long-time Marketo customer with several of its portfolio companies part of the Marketo Marketing Nation," Marketo officials wrote. "Vista is acquiring Marketo to invest in continued innovation and strong revenue growth.”
Marketo’s Innovation Roadmap
Marketo had an extensive innovation roadmap before the acquisition — and the investment can only help, according to analysts.
At its Marketing Nation Summit in Las Vegas in early May, Marketo announced a major platform re-architecture project. Code named Project Orion, it is intended to deliver big data scalability and transactional support for business-to-consumer (B2C) use cases.
Marketo CEO and Chairman Phil Fernandez called it the company’s biggest technology investment to date.
“A private equity investment could provide the equity and the sight screen to enable that steep investment,” she said. “And I heard Phil Fernandez talk about this capability of putting marketers in the strategic sweet spot for CEOs in all industries, which would put Marketo in the strategic sweet spot for the CIO/CMO alignment. Marketo is behind other marketing tech companies in the relationship game with both CIOs and CMOs. However, an acquisition by a company that has those relationships would render that weakness historical.”
Cindy Zhou, vice president and principal analyst covering digital marketing and sales effectiveness for Constellation Research, said if the merger’s done properly, she expects full customer journey insight integrating digital to physical.
“This has been clunky in the past so Cvent, Mediaocean (Vista portfolio members) all have a roll,” Zhou said. “This is part of the growing influence of CMOs in the budget process.”
Worth the Dough?
Vista has offered to pay Marketo 6.5 times its 2016 consensus revenue estimate of $272.4 million.
CMSWire Contributing Author Robert DeFrancesco, managing editor at Tech-Stock Prospector, called that an “interesting takeaway.” Marketo, he pointed out, is expected to grow at 29.8 percent.
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HubSpot, a Marketo marketing automation competitor out of Cambridge, Mass., trades at 6.3 times its 2016 consensus revenue estimate of $259 million, with expected growth of 42 percent.
“HubSpot now looks cheap relative to Marketo’s buyout valuation,” DeFrancesco said, “especially because its growth rate is 1.4 times that of Marketo. HubSpot focuses more on smaller customers, so that could be one reason for the valuation discrepancy. But you can't argue with the higher top-line growth rate.”
Alex Zukin, managing director and senior research analyst in the software sector for Piper Jaffray, told CMSWire during the Marketo customer conference that Microsoft or SAP would be likely buyers. Zukin yesterday said the price point of the pending Vista acquisition makes sense and is in-line with the range his team discussed originally.
“I wouldn’t expect any incremental strategic interest at this point, because given the leaks and the timeframe the process seems to be at an end,” Zukin told CMSWire. “I would have expected a strategic versus a PE bidder here given Marketo’s positioning in the market and the lack of assets at scale available — and the fact that neither SAP nor Microsoft have a play here. But something about either the deal or the process didn’t make that outcome likely.”
But don't rule out another bid before the deal closes. In a research note released today, Jack Andrews, VP and senior research analyst at Great Falls, Mont.-based D.A. Davidson & Co., floated the idea of a "possible, but not probable" alternate bid for a company that has promoted the concept that marketing has evolved from a cost center to a critical piece of a business with a seat at the revenue table.
"Moving forward, the company’s view is that marketers will lead a digital transformation by focusing on the customer experience," he said.
"Given the valuation, we still believe an opportunity exists for strategic players to potentially make a bid," Andrews wrote, noting that his company has long viewed Marketo as a potential strategic asset, and believes its "strong product offerings would fit well with a number of software companies," including most notably SAP and Microsoft, as well as LinkedIn and Adobe.
However, he noted that the company faces significant challenges in the near term because it is "moving simultaneously in multiple directions."
It continues to focus on the enterprise, which is fraught with competition from larger enterprise software vendors; has shifted from aggressively hiring salespeople to leveraging talent in place; introduced a new pricing model; and embarking on a technology platform overhaul to shift its entire customer base to a next generation solution, he said.
It could be precisely those issues that Vista — or a last minute alternate buyer — could feel capable to address.
Billion Dollar Club
The pending acquisition puts Marketo second in the largest deals to date featuring marketing automation providers.
Between 2010 and 2014, investors pumped $5.5 billion into marketing automation. The largest was Salesforce’s acquisition of ExactTarget for $2.5 billion, after ExactTarget acquired Pardot for $95 million. Other notable buys include Oracle purchase of Eloqua for $871 million in 2012 and Adobe's $600 million acquisition of Neolane in 2013.
More generally, the deal — which follows EQT's $1.14 billion majority investment in Sitecore earlier this year — represents new PE bets on "a new generation of big MarTech firms to compete with the existing giants of Adobe, Oracle and Salesforce,” said Brinker, founder of ChiefMartec and chair of MarTech: The Marketing Tech Conference. “It's worth pointing out that this acquisition does not represent consolidation in the space, as Marketo will continue as an independent, albeit privately owned, marketing tech company.”
Brinker said the industry’s already seen two alumni marketing technology startups emerge from Marketo's ranks — Captora and Engagio.
"With this all-cash acquisition of Marketo,” he added, “we might see other alumni strike out with new MarTech ventures of their own.”
Andy MacMillan, CEO of Act-On Software, a Beaverton, Ore.-based marketing automation provider, said Vista Equity’s purchase of Marketo “further validates the marketing automation industry and the value the technology brings to organizations.”
“Marketo was an early pioneer in demand generation, having been the second MA vendor — behind Eloqua — to IPO, and Vista Equity Partners sees the long-term value,” MacMillan said. “The use of marketing automation has just scratched the surface and there is a lot more that we will see from it. The future of marketing automation goes beyond demand generation. It will be the command center stewarding the customer experience — from brand awareness through customer retention and loyalty."
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