Vista Equity Partners picks up Marketo for $1.8bn

Contact: Scott Denne

Three years after the peak of marketing software acquisitions, Vista Equity Partners pays $1.8bn in cash for Marketo. The waiting didn’t hurt Marketo. It fetched the second-largest price tag in a marketing automation deal – at $2.5bn, ExactTarget claims first – and at 8x trailing revenue, the valuation lands above the median 5.1x for marketing software transactions worth more than $250m, according to 451 Research’s M&A KnowledgeBase.

Marketo has a claim to that kind of multiple. Its peers – ExactTarget, Responsys and Neolane – all drew valuations in the 8x neighborhood, while Eloqua and Demandforce brought in 10x and 11x, respectively. Those earlier valuations, however, were predicated on synergies with strategic buyers. In hindsight, some of those were imagined synergies. Still, that kind of valuation becomes tougher to justify with a financial acquirer. More so when considering that Marketo has shown little sign of slowing down its spending or reaching profitability: it lost $72m on $224m in revenue over the past 12 months.

Worse still, Marketo has been moving upstream from the medium-sized business market toward the enterprise segment as it seeks continued growth – revenue grew 35% year over year last quarter. As it enters the enterprise arena, it has faced tough competition on pricing from Oracle and other larger software providers that can sustain substantial losses to win market share among CMOs. Valuations have trended much lower in recent months on big-ticket marketing deals than they were in the 2012-13 heyday. Small-business specialists Yodle and Constant Contact were both valued at about 2x, while EQT paid 5x for Sitecore, whose topline and growth are similar to Marketo’s.

That said, Vista Equity will pay slightly less than Marketo’s 52-week high and one could argue that it’s getting a bargain in that respect – it paid the same multiple for Cvent, the event-planning software vendor it took private earlier this year (also below the 52-week high). And it may turn out to be one if there is another wave of marketing software M&A as Marketo is one of only a handful of large, independent players in the sector.

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