An unhappy anniversary for Vocus

Contact: Brenon Daly

It’s been exactly a year since Vocus rolled the dice on its largest-ever acquisition, and in the view of Wall Street the company has come up snake eyes. The February 2012 purchase of iContact, which nearly cleaned out Vocus’ treasury and caused a bit of acquisition indigestion, spooked investors. Since the deal, shares of the marketing software vendor have been nearly cut in half.

The decline has left the company a relative bargain in a market that has seen platinum valuations, both in terms of trading multiples and M&A valuations. Vocus garners a market cap of $285m, or just 1.4x its projected revenue of about $200m in 2013. That paltry valuation comes despite an accelerating bookings rate of roughly 20% forecasted for this year, about $25m of free cash flow generation and a reengineered suite of offerings serving a neglected segment of the market (midsized enterprises).

The last point is a key one for Vocus, which went public in 2005 as a single-product company. In its initial years, Vocus sold to PR firms, primarily helping them distribute their releases. In 2011, the company began expanding its portfolio, both through internal development and M&A. It acquired two small companies that year that brought technology around marketing on Facebook and Twitter. By the end of 2011, it had integrated those deals along with internal efforts into a single marketing platform.

Early sales for the integrated suite were encouraging for Vocus, reflecting the fact that marketing automation requires a number of offerings. (Many other players in this space – including ExactTarget, Marketo and Constant Contact – have all used M&A to build out a suite.) It then reached for iContact to add the outbound marketing piece of technology.

The acquisition, which bumped up Vocus’ revenue by about one-third overnight, required a fair amount of integration. Vocus says that work is behind it, and it can focus on selling its marketing suite. Assuming the company does hit its guidance of 20% bookings growth this year, it will mark the first time since 2008 that it has grown at that rate. Of course, Vocus was only generating about one-third the amount of sales then that it expects this year. And even then, Vocus shares traded higher than they do today.

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