Industry Pulse

Six ESPs “In Play”: The Buyers For Marketing Automation in 2014

In the coming weeks and months, more and more airtime in executive board meetings will be devoted to accelerating M&A activity within cloud-based marketing, specifically in deployment models such as Email Service Providers and Marketing Automation Companies (ESPs/MACs).  According to a relatively recent Barron’s article, the marketing automation (MACs) segment of tthis market will become a $20 billion market segment.  Gartner has the industry pegged at $22B by 2015.  If history is any indication of the future, maturing ESPs and MACs will take the industry higher as more SMBs begin using marketing automation. I think the industry can reach 30B by 2016 as new verticals, such as healthcare and manufacturing are introduced.  Further, customer intelligence is more powerful than ever, with increasing data sets to complement different marketing platforms in order to induce subscriber interactions from every marketing channel.  In this blog post, I will attempt to forecast what may happen in the digital messaging space over the next 12 months.

I view six ESPs/MACs as “in play” to be acquired by three potential suitors: IBM, NetSuite, and SAP.  These three companies all want to do the same thing, and that is to enter the cloud computing race, specifically the marketing automation deployment model, for long-term sustained revenue growth.  The same situation occurred numerous times in 2013, with Adobe buying Neolane, SalesForce purchasing ExactTarget, and Oracle swallowing both Eloqua and Responsys.

When shopping for ESPs and MACs, it is vital for these three to search out acquisitions that will complement their existing portfolios; searching and finding the right balance is crucial.  For example, does the ESP/MAC have a balanced portfolio of B2B and B2C clients?  In today’s climate, we can identify a dependency on both types of clients, which results in a more balanced portfolio for the suitor to be.  It is important for potential buyers to consider how a given portfolio’s composition will mesh with the company’s strategic goals.

SAP, for instance, feels that a cloud deployment model will pay dividends as working habits become more mobile.  For SAP and other companies, a subscription based “deployment model” in the cloud means a more predictable earnings stream.  SAP’s goal is to earn 3B in cloud services revenues by 2017, which won’t happen without an acquisition of a mature ESP/MAC.  If a buyer cannot find a single company with a suitable portfolio, another strategy is to acquire one or more ESPs/MACs with different characteristics to reduce or oust the competition.

Below is a brief overview of seven companies that are ready for acquisition, and how they might sync with the three major suitors looking to acquire.

SailThru
At SailThru, based in NYC, Neil Capel and his team just received $20M in new Series C funding. The majority of their sends (deployments) are media focused, (b2c), so their portfolio has a large subscriber base.  Their clients include Mashable, Huffington Post and Business Insider, just to name a few.  SailThru can be a potential target for companies like SAP or Netsuite that want to beef up their cloud SaaS infrastructure.  However, because Netsuite’s wheelhouse is small to medium sized businesses, I don’t think a Netsuite/SailThru deal is in the works.  Look for either IBM or SAP as a potential suitor.  Like most maturing MACs, they are experiencing high growth.

LiveIntent
Last week, LiveIntent raised a fresh $20M in Series C funding as well.  According to Dave Hendricks, “the email address unlocks the internet for customers.”  LiveIntent merges programmatic ad buying and selling with email messaging.  Currently, they serve several billion real-time ads per month and more than 3000 different email newsletters are tagged through LiveIntent, allowing for more comprehensive data continuum. To date, more than 400  publishers and 500 advertisers are using their technology.  Potential suitors for LiveIntent include Oracle, SAP, Adobe, EBay, Amazon, Saleforce and Workday.  What distinguishes LiveIntent and makes them so appealing is that they are not competitive to any known platform to date.  It’s good to be a unicorn.

Act-On
Act-On Software was recently cited in the ForresterWave™ Lead-to-Revenue report as a leader in automation platforms for small marketing teams and large enterprises.  While the majority of their customers are B2B based, I expect Act-On to build on its current momentum in 2014.  They’re delivering about 400M emails per month, which isn’t a huge amount of volume, but their products and pricing models are perfect for the SMBs, which is the next market segment that ESPs and MACs are pursuing.  Act-On’s 2,000 customers range in size from small and mid-size businesses to large enterprises, and span a multitude of verticals.  I think the goal for Act-On is to be purchased relatively soon.  I don’t necessarily see an IPO happening with this company in the near future; rather, I see a merger with another ESP/MAC as more likely than a singular buyout by one of the three suitors.

Marketo
SAP has been rumored to buy Marketo, but so far that’s just a rumor. NetSuite could also be vying for Marketo as well.  Marketo’s sweet spot is SMBs in both the B2B and B2C space.  Realistically, that is the place to be if you were to start an ESP or MAC right now.  Marketo has also distinguished itself as a leader in the healthcare vertical, which will be imperative to its future, given the size of the healthcare industry.  For this reason, NetSuite is the obvious choice to acquire Marketo.  Netsuite’s sweet spot is the SMB space and the additional benefit of the healthcare vertical would make Marketo a healthy choice.

Silverpop
To date, Silverpop has received about $70M in funding.  Most of that capital has allowed Silverpop to grow globally as it seeks to continue expanding on its very well balanced client portfolio.  Of all the ESPs mentioned in this post, so far,  Silverpop has the most balanced portfolio, including SMBs and Enterprise clients, both B2B and B2C.  They are one of the top senders in the world based on a recent article we posted gathering intelligence from SenderBase.  I’ve spoken a great deal about Silverpop and consider it to be the belle of the ball.  They launched back in 1999 and have operations in the UK, Germany, Australia, Africa and South America.  They have well over 2,000 clients that represent well over 5,000 brands.  SAP, which wants to aggressively pursue the cloud deployment channel, would be very well served by purchasing Silverpop.  An earlier post here gives them a 1.7B dollar valuation.  Silverpop offers vendor-managed integration for both Microsoft Dynamics and Salesforce CRM systems.

Infusionsoft
About a year ago, Infusionsoft raised an additional $54M in funding from Goldman Sachs for its SMB marketing automation investments.  To date, they have raised a total of $71M.  Specifically, the goal of Infusionsoft is not necessarily to get purchased, but to be around for a long time; to that end, it is considering an IPO.  They cater to the SMB market, specifically to companies that have fewer than 25 employees.  Their SaaS platform automates the marketing tasks using SMS to capture leads then sends out automated emails on a scheduled basis, like most MACs.  Infusionsoft is built to last and growing at 25-30% per year.  This is a perfect partner for a company like Netsuite which is focused on the SMB market.  Infsuionsoft essentially consolidates platforms such as an ESP and CRM system and becomes a company’s all in one solution.

SalesFusion
[Updated 1.30.14 at 5:30pm PST]
SalesFusion just purchased LoopFuse in an undisclosed deal, although perhaps much of the 8.25M they received recently went to buy LoopFuse. While LoopFuse is a simpler version of cloud-based marketing automation companies, it does have social listening and publishing tools.  Having said this, SalesFusion might be setting themselves up to be a target for Microsoft, who apparently wants in on the marketing automation sweepstakes.   SalesFusion’s deepest CRM integration is with Microsoft Dynamics, so that all makes sense.  SalesFusion core focus is to focus on SMBs who strive to accomplish most automation tasks with “all-in-one” services as opposed to dealing with multiple platforms.  In my opinion, with the acquisition of LoopFuse today, SalesFusion can be a buyout target for either Microsoft, or SAP. But, these buyers are looking for bigger for highly mature companies at this point. SalesFusion, would need to get another round of financing, grow their core business or think about getting purchased by a larger ESP or MAC.

HubSpot
Honorable Mention: Founded by Brian Halligan and Dharmesh Shah in 2006, Hubspot started with three customers.  Today they have over 9,000 clients and a run rate of 60M or more.  To date, the company has raised more than $130M in VC funding.  One of the core tenets behind Hubspot’s growth is their exceptional ability to retain customers.  Hubspot’s current efforts are on international expansion; their first offices in Dublin opened early last year.  HubSpot’s goal is not necessarily to get purchased.  I think they are more focused on eventually evolving from private financing to public in the relatively near future.  I don’t see them as a buyout target, but rather predict an IPO in 2015 or 2016.  Fortunately for Hubspot, anything Mike Volpe is involved with usually turns to gold, as he’s one of the great marketing minds of our time.

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