Marketo Acquired by Vista Equity Partners for $1.79 Billion
CMS-Connected interviewed Cathy McKnight, Co-founder of the research firm, Digital Clarity Group and one of our News Contributors, to discuss what the future holds for Marketo’s business, customers, and competitors, after the marketing automation provider goes private with almost a $1.8 billion acquisition by Vista.
Details of the Acquisition
Marketo Inc, a cloud marketing solutions platform provider, has announced an agreement to be acquired by the technology-focused private equity firm Vista Equity Partners in a cash deal valued at $1.79 billion.
"After careful consideration and deliberation, our Board of Directors unanimously concluded that the sale of Marketo to Vista Equity Partners was in the best interest of Marketo and its shareholders," said Phil Fernandez, Chairman and CEO of Marketo. ”Today, we embark on the next leg of our journey, as we come to an important milestone for Marketo. The acquisition will allow Marketo to continue to focus on customer success and to remain the independent category leader, continuing to set the agenda for product innovation and thought leadership for the entire digital marketing industry. It will also enable us to successfully deliver on the bold vision we recently set forth – to give tomorrow's marketers and the C-suite an ultra-high-scale enterprise platform for customer engagement.”
Fernandez also commented on the future of the company:
“Our continued independence will allow Marketo to direct all of our energy to what we have done for so long: set the agenda for product innovation and thought leadership for the entire digital marketing industry, and to make you and the rest of the marketing nation successful.”
As CMS-Connected reported earlier this month, Marketo hired investment bank Morgan Stanley to explore various “strategic alternatives,” including a potential sale of the company. Although Marketo spokeswoman Stefanie Gordish said: “We do not comment on speculation or rumors,” at that time, today’s news finally confirmed the recent speculation. The stock shot up more than 9% Tuesday morning, after Vista Equity Partners was said to be involved in advanced acquisition discussions.
Different from the other liquidated companies whose investors are threatened by going under, Marketo is not alarming in a business manner as the San Mateo, California-based company demonstrates a net cash position on its financial statements. Not only that but also the company has seen revenues grow at a 30%-to-40% rate, with a substantial loss due to its operation, according to its most recent quarterly report.
Vista, reportedly in a record $10 billion fundraising process, has been aggressively active in the market when it comes to acquiring undervalued technology companies. Recently, the private equity firm acquired an event management company Cvent in a deal valued at $1.65b in April. Moreover, the analysts believe the acquisition of Marketo secured Vista’s position as one of the most acquisitive PE buyers in 2016. Would this deal consequently make Vista slow down or require it to make some cost reductions to secure debt financing as the company tends to reduce especially Marketing expenditures. Well, the time will tell that, but Brian Sheth, Co-founder and President of Vista said:
"Marketo is the clear leader in the marketing automation space and has consistently delivered innovative mission critical products to its more than 4,600 customers. Given our proven track record and focus on investing in high-growth SaaS platforms, we are thrilled to partner with Phil and the broader Marketo team to help the company accelerate innovation, growth, and excellence."
Microsoft and SAP
As CMS-Connected recently reported, Credit Suisse analyst Philip Winslow speculated that if Marketo was ready to sell, Microsoft or SAP would have been the most logical buyers. The biggest reason why SAP was Marketo's most likely suitor, with Microsoft as another potential bidder is that neither has made a big move into marketing software to date, while other big players in the industry have been investing in various marketing applications to enhance their customers’ digital experiences. In addition to that, Mark Moerdler, an analyst at Bernstein, wrote in a research if Microsoft has profoundly synchronized Marketo’s cloud marketing software with its Dynamics CRM cloud systems, the deal might have been an add-on for the $414 billion.
Since Marketo returned to private ownership, a question has risen as who might likely be acquired by Microsoft and SAP? Would it be HubSpot? One of the most common concerns about the acquisition is that since Vista is not a software maker like Microsoft and SAP, how much continued investment in R&D will happen as it is critical to secure and increase market share in today’s flighty technology industry. Some experts believe it would have been better if Microsoft or Salesforce had acquired them as those companies could be mentally on the same page with Marketo due to their core businesses. On the other hand, with the Lanyon, Media Ocean, Cvent, and Marketo acquisitions, Vista became the private equity with the biggest stake in the Marketing and Advertising technology space, so it means there will be most likely some innovations in the future.
A Few Thoughts on the Acquisition
Cindy Zhou, a digital marketing expert with Constellation Research Inc., discussed the acquisition on her blog post and stated:
“Marketo’s acquisition was only the latest in what has become something of an annual tradition since 2010: for example, Oracle Corp. acquired marketing automation firms Market2Lead in 2010 and Eloqua in 2012; in 2013 Salesforce.com purchased ExactTarget, which itself had aquired Pardot in 2012; and IBM purchased Unica in 2010 and Silverpop in 2014.”
She also warned the current Maketo users:
“In the meantime, current Marketo customers should lock in their terms and pricing ASAP, or prepare to sign multi-year agreements during renewal time, as Marketo’s current one-year renewal options will cease to exist. They should also expect delays on several products that Marketo recently announced, such as their platform re-write, Project Orion.”
Another different standpoint came from Ray Wang, Founder and Principal Analyst with Constellation Research:
"In the past, when Vista has made acquisitions like this, such as of Tibco, they've done weird things such as using management tests as part of the process,” he said and added “In addition to the talent loss that Marketo would have naturally experienced following its 2013 initial public offering (IPO), there will likely be "a little bit of an exodus" following this latest news.”
He also expressed his concerns from a customer perspective:
"Pretty soon it's just about keeping a maintenance stream of customers and not really growing the market," he explained. "What most of our customers are worried about is the lack of innovation that could occur, especially given Vista's reputation. They [Vista] often tend to reduce expenditures on sales and marketing as well, as a way of cutting costs."
Although it is early to firmly predict the company's future, one thing is safe to say that the deal is the largest transaction in the marketing cloud market since Salesforce’s $2.5 billion acquisition of ExactTarget and Oracle's $1.5 billion acquisition of Responsys in 2013.