ADAM could be next DAM deal

Contact: Matt Mullen

We noted back in February that the market for specialist digital asset management (DAM) platforms was beginning to heat up as organizations were starting to reach the limitations of lightweight and embedded alternatives that had been ‘good enough’ for their current needs.

Of the DAM vendors we specifically looked at earlier this year, MediaBeacon has already been scooped up – in March by packaging provider Esko – and there are indications that ADAM Software could be next in line to be acquired, but by whom?

We expect that a purchase of ADAM Software will be concluded in the next year, with the likely buyer being one with existing experience with the platform and its subsequent implementations. ADAM is far from the only show in town – there are numerous small and probably much cheaper firms that could be acquired – but its strong product focus and revenue base (with virtually zero dependence on income from services) make it a very attractive target.

Subscribers to our Market Insight Service can click here to see a detailed report on ADAM, including potential suitors.

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What does Matomy’s MobFox say?

Contact:Scott Denne

Matomy Media Group has spent the past eight years buying a portfolio of performance advertising products across multiple formats and categories. Its recent focus has been on mobile, an area where we expect it to continue to build and buy, given the immense growth in that segment of digital advertising, matched with the fact that mobile is bleeding into every part of its advertising business.

The Israel-based company often takes a one-and-done approach when it buys its way into a new advertising channel. And while it got into mobile apps with the acquisition of MobFox late in 2014, we expect that the company will still actively seek deals in the space that augment MobFox’s in-app banner and video ad exchange. Matomy posted 23% sales growth in 2014, and an increase in mobile capabilities could propel that further. 451 Research’s Market Monitor projects that the global mobile ad sector will grow 52.6% to $28.7bn this year on its way to $51.6bn by 2018.

Subscriber’s to 451Research’s Market Insight Service can access a detailed report on Matomy Media.

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Social media primed for advertising M&A

Contact: Scott Denne

Advertising already generates billions of dollars for Facebook and Twitter, but the market for tools that enable advertisers to target social audiences is still nascent. As the importance of advertising on social media grows and the platforms become more diverse, businesses from different corners of the marketing and ad-tech ecosystem will likely add offerings to address this need.

There have already been a few tuck-ins by advertising and social media marketing companies such as Sprinklr, MediaMath and Buddy Media (before becoming part of Now, changes to Facebook’s News Feed algorithm that limit the reach of organic marketing mixed with a host of diverse social platforms beginning to sell advertising could spur dealmaking and generate attention for social advertising software vendors that can execute and optimize social advertising budgets.

Businesses built around social media marketing or those that focus on paid advertising in other, non-social channels have, so far, been the acquirers of social advertising firms. We believe the categories of acquirers should and will expand to include enterprise software providers, small business software vendors and, of course, continued activity from ad-tech firms.

Subscribers to 451 Research’s Market Insight Service can access a detailed report on this sector.

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Waterfall capitalizes on Archer’s bankruptcy

Contact: Scott Denne Sheryl Kingstone

Waterfall sifts through Archer’s bankruptcy to pick up some mobile marketing and messaging assets. The acquirer will pay $2.9m upfront (plus as much as $1m more if certain closing requirements are met) for Archer’s marketing services division, which is essentially the iLoop Mobile business that Lenco Mobile (Archer’s parent company) bought in 2011 for $42m.

The trailing revenue of the assets Waterfall is getting isn’t clear, as it is leaving behind a side business in healthcare-focused mobile messaging. What is clear is that iLoop hasn’t fared well under Lenco’s ownership. The unit posted about $5.5m in trailing revenue, less than the $9m we estimate it had at the time of its sale.

This transaction is small but indicative of a coming trend toward consolidation in mobile marketing and messaging. The space is intensely fragmented between mobile advertising networks, mobile website and content creators, mobile payment firms, aggregators, mobile publishing and application development providers, and mobile analytic vendors.

Like Archer, several other companies could quickly find themselves in financial distress. In fact, one of Archer’s competitors, Velti, filed for bankruptcy a year ago. Others could land lucrative exits as marketing dollars continue to shift toward mobile and businesses like Adobe, Oracle and that invested heavily in email marketing look to expand their mobile messaging offerings.

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ReachLocal extends into booking software

Contact: Scott Denne

ReachLocal makes another move beyond media sales and into subscription software with the purchase of Kickserv. The target adds online appointment booking and related management software to go with ReachLocal’s focused marketing and sales software – a stack it has been building out as its original business has decelerated and shrunk.

The company was built around providing software to manage and optimize the digital advertising efforts of small businesses, especially search engine marketing. ReachLocal has expanded further down the sales funnel with lead management and other software. This acquisition gets it a step closer to covering the full funnel, from lead generation to conversion. In particular, Kickserv is an attractive target because, like ReachLocal, it’s strongest in home services, a vertical that’s less competitive for booking software than other SMB segments like medical and legal.

Reach Local’s path to becoming a SaaS vendor has been bumpy. Revenue dropped 11% year over year this quarter to $118m, largely the fallout from a reorganization of its sales team to align with its strategy to reach beyond digital marketing. Last year it attempted to build its own online bookings capabilities, but the offering’s lack of functionality led to ReachLocal’s divestment of that product line.

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Small ball M&A paying off for

Contact: Brenon Daly

When it comes to M&A at, starting small has yielded higher returns than going big. The SaaS giant has returned to the ‘buy and build’ strategy with its latest step into a new market with Analytics Cloud. The data visualization offering, which was unveiled this week at Dreamforce, was underpinned by the acquisition of EdgeSpring back in June 2013.

The $134m price notwithstanding, EdgeSpring stands as a small deal for (We profiled EdgeSpring shortly after it emerged from stealth and a half-year before it was acquired. At the time, it claimed more than 10 paying customers and about 30 employees.)

Certainly, there were bigger targets for a move into the analytics market by, which will do more than $5bn in revenue this fiscal year and says it has a ‘clear line of sight’ to $10bn in sales. For instance, both Qlik Technologies and Tableau Software offer their data visualization software on’s AppExchange. With hundreds of millions of dollars in revenue, either of those vendors would have established as a significant player in the data analytics market as well as moving the company closer to its goal of doubling revenue in the coming years.

However, in that regard, a purchase of either Qlik or Tableau would be comparable with’s reach for ExactTarget in June 2013, which serves as the basis for its Marketing Cloud. The deal was uncharacteristically large, with spending more on the marketing automation provider than it has in all 32 of its other acquisitions combined. More significantly, has struggled a bit with ExactTarget, both operationally (platform integration and cross-selling opportunities) and financially (margin deterioration).

In contrast to that big spending, dropped only about one one-hundredth of the price of ExactTarget on InStranet in August 2008 ($2.5bn vs. $32m). The purchase of InStranet helped establish Service Cloud, which is now the company’s second-largest business behind its core Customer Records Management offering. And says the customer service segment is much larger than the market for its sales software.

Those divergent deals are something to keep in mind when buys its way into a new market. If we had to guess, we would expect the company to next make a play for online retailing (maybe call it Commerce Cloud?). If that’s the case, we might suggest that it look past the big oaks like Demandware and focus on the seedlings that can then grow up in the ecosystem.

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In HubSpot IPO, it’s the company and the company it keeps

by Brenon Daly

Wall Street typically doesn’t have the chance to learn too much about the companies that come public before the actual IPO. Certainly, the debutants don’t come with the track record of businesses that have lived in institutional investor portfolios for quarters on end. To alleviate some of that uncertainty, which is corrosive to any investment, a key selling point for some IPOs isn’t so much the company, but the company that it keeps.

Consider the case of HubSpot. (Subscribers: See our earlier preview of the HubSpot IPO .) The marketing automation (MA) vendor hit the NYSE on Thursday, creating more than $900m of market value. (The company priced its 5.75-million-share offering at an above-range $25 each, with shares ticking to $30 after the IPO.) HubSpot’s initial valuation works out to roughly 10 times trailing revenue, which is among the richest valuations for MA providers. In fact, it almost exactly matches the current trading valuation for MA high-flier Marketo.

While HubSpot is lumped in with Marketo, the two companies aren’t direct head-to-head rivals. They hawk their wares to very different customers, with HubSpot focusing solidly on the midmarket while Marketo targets bigger businesses. That shows up clearly in the fact that HubSpot has more than three times as many customers as Marketo, but generates roughly one-quarter the revenue of the larger – and faster-growing – MA vendor. (HubSpot has more than 11,600 customers, while Marketo has 3,300 or so.)

Undoubtedly, HubSpot is enjoying a bit of a boost by getting compared with an upmarket vendor. It wouldn’t find such bullishness if it went the opposite way, selling its marketing suite to small businesses. The public market proxy for that market is Constant Contact, which has had a choppy run on Wall Street and trades at a sharp discount to either Marketo or HubSpot.

Constant Contact sells to very small businesses. Nearly two-thirds of its roughly 600,000 customers have less than 25 employees. Still, it has built a sizeable business selling to corner stores, freelancers and other small operations. (Constant Contact will put up more revenue this year than Marketo and HubSpot combined.) What the marketing platform supplier hasn’t done so successfully is market its story to Wall Street. Constant Contact trades at about 3x trailing sales, just one-third the valuation of upmarket vendors HubSpot and Marketo.

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Alliance becomes biggest dealmaker in move from offline to online marketing

Contact: Scott Denne

Amid similar moves by its peers, Alliance Data Systems makes the biggest leap from marketing data to marketing software in its $2.3bn acquisition of Conversant. Like other offline marketing data service providers, Alliance sees a move into digital marketing as the only real way to grow its offline marketing data business.

Alliance is handing over 7% of its stock (worth $1.2bn) as well as shelling out $1.1bn in cash to get its hands on Conversant; despite that, the stock is up 2% on the news. That’s as much a reflection of Conversant’s financial metrics – the target has better margins than Alliance’s Epsilon and will boost the EBITDA margins of that unit (which will be home to Conversant) from about 22% to above 25%.

At a multiple of 3.7x trailing revenue, the transaction is on the high end of valuations for ad-tech firms – again, reflecting Conversant’s unusually high profit margins in that sector – but lower than the 10x and beyond paid (in smaller deals) by Alliance’s peers Acxiom and Neustar.

This isn’t Alliance Data’s first move into digital marketing: it picked up a handful of email marketing businesses last decade and again in 2011 and 2012 when it bought a pair of digital marketing agencies – Aspen Marketing Services and Hyper Marketing – for a combined $820m. The company has also dabbled in other areas of digital marketing and ad tech, but has found little success beyond email and has remained a services-heavy business.

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HubSpot markets a potential IPO

Contact: Scott Denne Matt Mullen

HubSpot takes the covers off its financial performance by filing its S-1. Like many recent SaaS IPOs, the documents show strong growth but steep losses. The company points to the nearly untapped market for its software ? and our surveys indicate that this is indeed the case, but HubSpot and its competitors will have to continue to spend heavily to build that opportunity.

HubSpot generated $93.8m in revenue for the most recent 12-month period ? an impressive 46% increase compared with a year earlier, but growth is declining from the 50% the company posted in 2013 and the 81% in 2012. During that same period, it had a $35.7m net loss, a figure that only grew 34% year over year. While losses as a percentage of revenue continue to tick down, HubSpot is many years away from putting up annual profits (not that we expect a lack of profits to impact the offering).

A recent survey by ChangeWave Research, a service of 451 Research, revealed that only 24% of companies had either deployed or planned to immediately deploy any form of digital marketing technology. Among companies with 10-1,000 employees (HubSpot’s sweet spot), nearly two-thirds said they had no near-term plans to begin using digital marketing technology, highlighting that while there is certainly a sizable chunk of the market that has yet to be tapped, the job of persuading the majority of potential customers that such investments are worthwhile is an ongoing challenge.

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Mad Mimi lands in GoDaddy’s inbox

Contact: Scott Denne

GoDaddy swaps out its email marketing software as it heads toward a public offering. The Web hosting giant had an acquisitive streak last year, printing seven deals, but today’s purchase of Mad Mimi is only its second of 2014. That the transaction comes amid a relative M&A drought and replaces an existing product highlights the importance that GoDaddy places on email marketing capabilities – and rightly so.

Though there’s plenty of buzz around social and other corners of the marketing software business, email dominates digital marketing. According to a survey by ChangeWave Research, a service of 451 Research, 76% of respondents use or plan to use email marketing, 25 percentage points higher than any other category of marketing software. And while 41% plan to increase spending on digital marketing, only 2% expect to cut back.

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