A fast-growing market for marketing software

Contact: Scott Denne

Marketing software M&A is surging through the first half of the year. In the first two quarters of 2016, spending on marketing acquisitions reached $4.2bn, putting this year on pace for a category record, according to 451 Research’s M&A KnowledgeBase. In no small measure, the boom is being fueled by private equity (PE) firms. Already this year, financial sponsors have spent $3bn on vendors in this space. That’s triple last year’s total, a level that itself was more than the cumulative total of the previous seven years.

Uncharacteristically, the PE deals have also carried the highest multiples. Vista Equity Partners’ $1.8bn take-private of Marketo valued the target at 7.9x trailing revenue – higher than any other marketing target with over $10m in sales. EQT’s $1.1bn purchase of Sitecore was the third-highest multiple at 5.2x. (Telenor’s pickup of ad-tech firm Tapad was the second-highest.)

The companies garnering the lowest valuations were those providing marketing software for small businesses. In late June, ReachLocal sold to Gannett for just $156m, or 0.4x, following a painful restructuring to focus on more profitable SMB accounts with a larger suite of products to entice them (the firm was built around search engine marketing software). Its competitor Yodle fared just a bit better, selling for $342m, or 1.6x, as slowing growth set up obstacles to a public offering.

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