Magento: a new shade for Adobe

Contact: Scott Denne, Sheryl Kingstone

Adobe’s $1.7bn acquisition of Magento Commerce brings the buyer into new territory. Not only does it extend the enterprise software vendor’s customer engagement suite beyond marketing, but Adobe is also paying a price that’s well beyond its norm.

The company spent the past two years repositioning its marketing software business as a ‘customer experience’ business. Yet it lacked tools to finalize the most important part of a customer experience – the purchase. The pickup of Magento changes that. In buying Magento, Adobe fills a gap where its two strengths meet. The company made its mark in creative and content, later building a weighty position in marketing and advertising software. Its customers use those capabilities to bring business to their websites. Now, by owning a commerce platform, Adobe will have an offering that covers the last mile.

With Magento, Adobe inks its largest acquisition in the nine years since it paid $1.8bn for Omniture – the nucleus of its marketing software portfolio. Despite the similar purchase price, Omniture was more than twice the size of Magento and valued at half the multiple – more in line with a typical Adobe deal. According to 451 Research’s M&A KnowledgeBase, Magento’s valuation – 11.2x trailing revenue – is six turns higher than the median valuation of an Adobe acquisition and its largest on record.

Although it’s above the norm for Adobe, it’s in line with market comps – other commerce software providers with scale have fetched similar prices. Salesforce paid 11x in its $2.8bn purchase of Demandware, while SAP paid nearly as high in its $1.3bn pickup of hybris (see 451 Research’s trailing revenue estimate for hybris here). More recently, a pair of private equity firms took CommerceHub private at 9.9x, and Shopify boasts 19x on the public market.

Digital commerce software products command a perennially high share of organizational resources, helping those vendors command premium valuations. In each of the two most recent 451 Research VoCUL: Mobility and Digital Transformation Surveys, 27% of respondents told us their company plans to deploy or upgrade digital commerce systems in the next 12 months. That number jumps to 32% in the latest survey when including only businesses in Magento’s sweet spot: $100m to $1bn in annual revenue.

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Posted in M&A