Open acquisition season by Chris Wheeler @ChrisAWheeler
It’s hunting season, folks! Not “wabbits” this time of year, but rather companies in the email space.
Over the last few weeks since 2010 began, there have been several notable mergers and acquisitions taking place.
- SubscriberMail acquired by Harland Clarke Corp. (Announcement)
- Pivotal Veracity acquired by Unica (Announcement)
- Japanese company A-Care Systems acquired by Experian to merge with CheetahMail (Announcement)
- Zimbra acquired from Yahoo! by VMware (Announcement)
What is going on out there? Some folks are still cleaning up the mess left after their New Year’s Eve Party and February is still a few weeks out. Yet, the business decision makers for these companies have been hard at work to launch these new ventures after the ball dropped in Times Square.
The following two theories come to mind:
- Email is not dead. There has been a lot of talk over the past few months after a controversial article was posted in the WSJ about how email has had its run, other social networking technologies have steamrolled over it and that the mode of communication is outdated beyond its prime. If that were the case, why would companies be scrambling to pay out for their rivals or complimentary partners to help make their service offering more robust? I would imagine that if email were dead, people would be fleeing from the email marketing community in droves, which is not the case. Yes, AOL announced depressing news of lay offs as it realigns itself with an advertising and content model. But, this is an outlier in the email marketing equation as the company attempts to hold onto to capitol and keep from further hemorrhaging money. Not indicative of the whole industry.
- The economy is improving. And the companies investing in these ventures believe that wholeheartedly. We’ve heard it from the government, seen it by the pickup in sales this past holiday season over Q409, and can appreciate it with the slew of jobs being added to email marketing companies that just didn’t exist while the depression was in place. My own company, Bronto, is hiring now more than I’ve seen in the last year or so. Why? Because the management team believes that investment in expanded talent will help scale and match the demands of the economy as it rights itself. These investors acquiring other companies feel the same way.
Some have said that the dip in valuations of companies coming off the economic depression in the US has led to the deals and eventual acquisitions of the companies. Others say the motivation for the bought companies to reduce costs and drive revenue by getting an infusion of cash is what spurred the move.
I am not a financial expert, but I spoke with industry colleague Michael Perham about the topic to get a better idea of why this is happening. He used to run Business Development at AdKnowledge and is familiar with this space. He mentions that balance sheets look really good right now in a soft economy (let’s face it, 2009 wasn’t good for many folks) and that companies are looking for a way to diversify their revenue streams to have a wider suite of offerings in their space. Expanding one’s position in their vertical is key right now to not only take out the competition but also better dictate your own pricing structure. Less competition equals greater control over price points.
Also, it’s important to note that M&A (merger and acquisition) activity significantly slowed down or stopped in some industries during the slump in the economy so it could be argued that companies are just now able and trying to get in on the deals still available before the prices rise again thus increasing valuations. We might be seeing what is the beginning of a major run on companies in the email industry. Similar to what Responsys did back in Q309 when acquiring Smith-Harmon, companies are getting more creative and aggressive as they realize that dollars are being scooped up with more marketing opportunities discovered, but just as a natural resource, the amount of wealth to be tapped into is finite. You can’t magically double or triple your recipient base and cause more conversions because you will it so. But, what you can do is ensure you have complimentary services to the core services you offer and as much of an all in one solution for your customers. Granted, this mainly applies to companies that are being pushed to chase the dollar from VC backed boards or equity firms – their number one goal for business is to make money off their investments. Wall Street finds roll-ups like this attractive when a company has gone IPO and thus becomes a reigning factor in making business decisions.
Do you have any other M&A activity you’d like to share? What are your thoughts? Do you think we’ll be looking at a significantly reduced number of players come next year this time? I’d love to get your opinion on this.
Chris Wheeler
Director of Deliverability at Bronto
@ChrisAWheeler
Takeaway: If eMail marketing is dead, how come so much smart money is being invested into it?
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Chris,
Good article.
I’ll just try and add/expand on a few points.
M&A in the space is driven by pressures from both sides.
Sellers are looking to take cash off the table, even at a lower valuation. They are also often driven by the need to align with a larger company to increase their market position from a sales & equity event perspective.
Buyers are looking to increase their top line revenues and see value in doing ‘rollups’ as a way to increase their position and ability to either go public or be acquired by a bigger entity later on. With the changes that have come with Sarbanes-Oxley the past few years, companies with market caps under a billion dollars have a hard time justifying the filing fees and subsequent costs associated with being a public company. There is also pressure with CEO pay as well, and it has become harder to justify those salaries as a public company, so creating an attractive acquisition makes alot of sense.
Overall we will continue to see more M&A activity in ’10, at least until the numbers cease to make sense, which IMHO, will be awhile.
Michael –