Today, software functionality is delivered on a subscription-based model, in the same way as content services. So it seems only natural that vendors should provide both software and content. Large companies buy demographic and credit information to enrich their customer data, small companies collect email addresses; everyone needs their target audience, as well as customers, within their marketing platform.
This integration could be achieved by mergers & acquisitions (M&A) or partnerships and the high valuations enjoyed by marketing software companies will affect the outcomes.
MERGER & ACQUISITION ACTIVITY
LinkedIn has stepped up efforts to offer a comprehensive B2B marketing platform with its recent agreement to acquire Bizo for $175m. Bizo offers technology and products that enable measurable display and social advertising programs. With a headcount of around 150, it is likely that revenue was less than $30m. LinkedIn believes the market for B2B marketing services is a $50bn opportunity.
Social relationship platform, Sprinklr, has announced the acquisition of social media agency, TBG Digital. Together they will provide large brands with a converged social media solution. While merging a social media agency with a marketing automation platform will significantly increase revenue, it will reduce the market capitalization/trailing twelve months (TTM) revenue multiple. I believe the market could also be left confused about what the company actually does. To add to this confusion, Sprinklr acquired professional services business, Dachis, earlier this year, further reducing the TTM revenue multiple that investors/buyers will be prepared to pay for the business.
This flurry of mergers and acquisitions raises a number of questions: “Does the merger of content and software technology provide new exit opportunities for young, fast growing software companies such as Falcon Social?” Will we see more content publishers buying software companies, or will software companies look to buy content publishers?
CONTENT PUBLISHERS ARE UNLIKELY BUYERS
Generally, large public content publishers aren’t as highly valued as young, fast growing technology companies. A recent Bulger Partners report, Marketing Technology Overview, shows that in recent M&A transactions the typical valuations of marketing technology vendors were 5x TTM revenue. This is high in comparison to most public market valuations.
Public content publishers find it very difficult to acquire companies that are valued on a higher revenue or EBITDA multiple than themselves. It produces a dilution of value that isn’t acceptable to shareholders. As a consequence, it is unlikely that traditional media companies will be able to buy young marketing technology businesses with expectations of high revenue multiples. Are commercial partnerships a possibility?
PARTNERSHIPS MORE LIKELY THAN M&A
As social media continues to gain momentum, companies need to link social profiles with individuals’ true identities, credit histories and commercial information. Most software companies prefer to use external data sources, rather than build their own, as this removes the need to collect and manage content themselves. There are many recent examples of commercial partnerships, particularly with social networks that have access to a wealth of data and can be used to distribute marketing information.
Consumer research company Nielsen provides data ranging from what people watch on television to what they buy in stores. Apparently, Nielsen has extended its partnership with Facebook. As more people watch TV on their mobile devices, Facebook will track its users’ mobile viewing habits and send information on what they watch, their age and gender to Nielsen.
LinkedIn has commercial partnerships with SalesForce and Microsoft Dynamics to provide access to LinkedIn profiles within their CRM systems. For CRM vendors, accessing LinkedIn data is extremely desirable for targeting B2B, as it is the world’s largest professional network on the internet with more than 300 million members worldwide.
I believe partnerships between young technology businesses and information providers, rather than mergers and acquisitions, are more likely because M&A only provides access to one information source. Young technology companies need to partner with multiple content providers so they don’t limit their market opportunity. Working in partnership with a number of information sources that have a large market share offers greater potential to boost sales by increasing the number of relevant customers to sell to.
While technology is changing at a rapid pace, it is doubtful that the M&A landscape is going to change. Content publishers aren’t valued highly enough to snap up fast growing technology companies. Of course, there are always exceptions, such as LinkedIn and Google. LinkedIn trades with a TTM revenue multiple over 11 and while Google only has a 2x multiple, it has over $60bn cash at its disposal.