march 2016 tech m&a update
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Tech M&A Update March 2016 | 1
March 2016
TECH M&A UPDATE
SaaS vs. SassafraS
Software as a Service – SaaS – has been one of the most successful business model innovations of the past few decades. In many applications, centralized hosting has replaced on-premise installation, single instance/multi-tenant software has replaced customized versions, and recurring subscription payments have replaced large upfront license and ongoing maintenance fees. Customers get the benefits of software for steady ongoing fees rather than large upfront payments. So, instead of buying and maintaining my own snow plow to clear my driveway in Connecticut, I can rent one for the winter.
However, SaaS is not always the right “one-size-fits-all” solution for the customer – I may not want to rent a snow plow, since I don’t know how they work and I don’t care to learn. I’d rather pay someone to plow my driveway for me. For software companies, an alternate services-led approach can also make sense for many customers and business cases – rather than offering software directly to customers, companies build a state of the art platform with a strong services layer. Client service teams expertly operates the software on behalf of customers to deliver the desired results. Call it “SaaS as a Service”. Or maybe “Software as a Service as a Freakin’ Awesome Service”– SassafraS.
The Dichotomy of SaaSWhen the SaaS model works, it works phenomenally well – cloud-computing icons like Salesforce, Atlassian, ServiceNow, LinkedIn, Workday and Zendesk displaced incumbent on-premise software solutions and sport a combined market value of $94 billion, trading at a median of 6.9x 2016 revenue and 44x 2016 EBITDA. However, the SaaS approach can sometimes become unwieldy dogma – the formula of putting everything in the cloud, selling only recurring subscriptions, and offering as little service as possible does not fit all business needs, and we’ve seen companies and investors struggle to force fit a SaaS model.
Furthermore, building a successful SaaS company is usually a tremendously expensive undertaking. In any software application, the user interface is the most time consuming and costly part of development. Sales cycles can be long (sales and marketing typically account for 40-60% of revenues in younger SaaS companies). Staffing up for installation, integration, training and support adds additional expense. Most SaaS companies climb a steep loss curve until subscription renewals catch up to development, sales and support expenses.
To SaaS or Not to SaaSCase in point – search management. Marin Software delivers an excellent platform for managing paid search, an $86 billion global market where Marin is the leading and only publicly traded software provider. But on revenue of $108 million last year, Marin lost more than $30 million as its valuation diminished to less than one times revenue. Revenue have struggled to grow fast enough to cover the costs of ongoing customer acquisition, along with the expense of developing and supporting a full user interface.
Contrast this with RKG, a privately held company that JEGI recently sold to database marketing giant Merkle. RKG had built search software comparable to that of Marin, but deliberately chose not to license the software; instead their service teams operate the platform on behalf of customers. The result was a growing and nicely profitable business, with gross margins and client renewal rates that compare well with conventional SaaS as major clients came to rely on RKG for consumer acquisition and grew their relationships year-over-year.
Author: Tolman Geffs, Co-President [email protected] +1 212 754 0710
THE SAAS APPROACH CAN SOMETIMES BECOME UNWIELDY DOGMA – THE FORMULA OF PUTTING EVERYTHING IN THE CLOUD, SELLING ONLY RECURRING SUBSCRIPTIONS, AND OFFERING AS LITTLE SERVICE AS POSSIBLE DOES NOT FIT ALL BUSINESS NEEDS.
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Another example of a sector where SassafraS works well is in more complex digital marketing programs, such as providers who help marketers offer contests and sweepstakes and the like to consumers. In 2012, Google paid $350 million for Wildfire, which aimed to provide promotions on Facebook on a self-service basis, much as Google offers paid search. Two years later, Google shut down Wildfire. In contrast, PrizeLogic operates a software engine that powers the back end of the largest promotions in the world, like the McDonald’s Monopoly game – but the company does not offer customers the option of operating the software. Instead, the company delivers promotional programs through its expert service teams. Gross margins and client renewal rates likewise rival what a SaaS offering could achieve, and the business generates strong profits.
Not Just Another AcronymThe key distinction between SassafraS and just plain service is the software – these companies have each developed sophisticated platforms that could – with additional investment in the front end UI, training and support, and sales – be licensed as a standalone product. But, each company chose a service-led path that yielded a strong growth and profit machine. Each prices on some combination of flat and volume-based fees with full transparency, and while revenue is generally not contractually recurring, it is highly re-occurring as clients rely on the business performance delivered by the software and expert service teams. Switching costs are not as high as fully integrated software, but higher than agency-like services.
As a final example, consider programmatic advertising management. Programmatic now accounts for a majority of US display ad spending and continues to grow rapidly. A number of companies have arisen to offer DSP and DMP platforms to manage programmatic media buying, such as AppNexus, Turn and MediaMath. Each has built an attractive and valuable business, and the three are collectively profitable today, but only after enormous investment – over $500 million combined – to fund steep losses. Again demonstrating an alternative approach, Accordant Media has developed similar DMP and DSP technology to manage the complex business of programmatic digital media. Accordant service teams operate the platform on behalf of major marketers to analyze customer data, identify responsive audience segments and run targeted campaigns to win new customers. The business is profitable and growing well, addressing the needs of marketers who would prefer not to invest in internal staff and technology to manage their digital media.
A Sassy ComparisonThe accompanying chart summarizes the contrast between a typical SaaS company in a $30-50 million revenue range and the median of the three example companies profiled above – RKG, PrizeLogic and Accordant Media.
The “SassafraS” approach of an enterprise-grade software platform with managed service delivery yields gross margins and revenue renewal on par with the median of similarly sized SaaS providers. And, these service-led models generate stronger profit margins, while requiring far less capital – indeed the largest startup investment across the three examples was a mere $1.4 million. Each company avoided the huge ante of developing a slick UI and teaching their customers how to use it, instead choosing to get paid well for operating the software on behalf of their customers.
To be clear – services-led software companies are much less likely to achieve multi-billion dollar standalone valuations. Pure software generally can scale farther if everything works out well, as switching costs and the barriers to competitors become higher, particularly if network effects kick in. But in a world where technology and customer needs can change quickly, building profitable companies with enduring customer relationships on modest capital can be an attractive alternative. Indeed, early Americans used sassafras bark to treat insect stings and as a rudimentary dental anesthetic – not a wholly inappropriate analogy to how this approach can help relieve investment pain.
SaaS vs. SassafraS (CONTINUED)
IN A WORLD WHERE TECHNOLOGY AND CUSTOMER NEEDS CAN CHANGE QUICKLY, BUILDING PROFITABLE COMPANIES WITH ENDURING CUSTOMER RELATIONSHIPS ON MODEST CAPITAL CAN BE AN ATTRACTIVE ALTERNATIVE.
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PRIVATE COMPANY SPOTLIGHT: REDPOINT GLOBALEach issue, we spotlight an interesting, emerging growth, privately-held company for our audience. As experienced tech investment bankers, we will highlight the key characteristics that enable these companies to be fast-developing market leaders and ultimately become compelling acquisition targets for strategic companies, as well as later-stage growth equity and private equity investors.
This month, our Private Company Spotlight shines on RedPoint Global, which offers an intelligent customer engagement platform that uses data-driven technologies to address an “audience of one” in B2C marketing. RedPoint Global’s Convergent Marketing Platform™ has evolved into a powerful and flexible environment that combines elements for today’s businesses into one cohesive system that offers access to structured and unstructured data, real-time analytics, and integrated cross-channel campaign management.
RedPoint Global offers a customer engagement solution that takes full advantage of the big data processing power of Hadoop, ingests real-time streaming data, and offers complete cross-channel campaign management – all on a single-code base, providing a significant advantage over solutions offered by companies with technologies acquired over time. Headquartered in Wellesley Hills, Massachusetts, RedPoint Global is backed by Persimmon Capital Partners and Grotech Ventures.
We spoke with RedPoint Global CEO Dale Renner for his perspective on how the Company differentiates itself from the competition.
THOSE WHO CAN MASTER THEIR DATA, GAIN INSIGHTS FROM IT, AND AUTOMATE THE USE OF THIS INFORMATION TO DELIVER THE MOST RELEVANT OFFERS ACROSS THE ENTIRE CUSTOMER JOURNEY WILL SUCCEED.
What is the “elevator pitch” of the main problem(s) RedPoint Global is trying to solve?Marketers are under extreme pressure to deliver business results. Those who can master their data, gain insights from it, and automate the use of this information to deliver the most relevant offers across the entire customer journey will succeed.
For B2C marketers, this all hinges on creating a unique “golden record” for each customer. RedPoint Global offers the only platform that enables marketers to create and utilize these rich, holistic profiles of customers – no matter where that data may reside or how fast it needs to be ingested – and then automate the delivery of precise messages to individual customers across the most appropriate execution channels.
How do you define and size RedPoint Global’s market?RedPoint Global’s customer engagement technologies are suited to organizations who embrace data-driven marketing to solve complex marketing challenges. Our customers are mid- to large-size enterprises executing B2C programs, many of which have complex, hybrid data environments and may need advanced capabilities, both in the cloud and on premises. We work with customers across a wide breadth of sectors, including: banking, insurance, healthcare, retail, travel services, automotive, non-profit, and consumer and business data compilers.
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PRIVATE COMPANY SPOTLIGHT: REDPOINT GLOBAL (CONTINUED)
What “secret sauce” differentiates RedPoint Global from competitors, big and small?A modern B2C customer engagement solution must integrate all channels, consume all data, and leverage real-time analytics to respond to each customer individually, at the customer’s cadence. RedPoint Global offers the only technology that enables organizations to harness and use all their data across all their channels, from one central control point. In addition, it is the only marketing platform that can take advantage of the processing power and cost-effective capabilities of Hadoop.
Our technology is powerful, but our secret sauce is being able to seamlessly bring together omnichannel campaign management, data management, and machine learning, in one powerful platform. Plus, we’re able to implement our technology in a fraction of the time of our competitors.
We have long been impressed by the size and quality of RedPoint Global’s customer base. Can you provide some representative case studies of why clients chose the Company?Large businesses with complex data challenges tend to be our hallmark customers:
• RedPoint Global is helping one of North America’s largest credit card companies and one of Europe’s largest home improvement retailers solve their unique data and customer engagement challenges.
• The American Automobile Association turned to RedPoint Global to help improve their organization-wide data management challenges. We helped them increase their data accuracy to 99% and optimize their cross-channel marketing campaigns – all without having to increase their level of dedicated resources.
• Xanterra, a travel and hospitality leader, increased revenue by 839% from campaigns driven by RedPoint Global.
• HP Enterprise selected RedPoint Global as part of its solution to help the world’s largest banks comply with the Basel Committee on Banking Supervision 239 guidelines.
Can you share with us some insight into the growth path of the Company in the past and looking forward?Last year, RedPoint Global experienced well over 100% growth. Our average contract value has more than doubled, and our customer retention rate is unparalleled, driven by high customer satisfaction rates. This year is shaping up to be equally exciting, as we again expect record growth. Additionally, we are aggressively expanding our footprint in Europe and Asia/Pacific markets and growing our partnerships with Microsoft, HPE and a host of other technology leaders.
What excites you when you think about RedPoint Global’s future?From an investment perspective, the next big marketing technology opportunity resides in the B2C marketing space, where the need for a database of record, real-time analytics and cross-channel execution converges. RedPoint Global addresses these needs and accommodates the streaming data demands coming from the Internet of Things, giving us a uniquely competitive position. In a recent report1, Forrester Research cited RedPoint Global as an innovator that brings “data management, real-time analytics, and cross-channel campaign management into an engine capable of delivering contextually relevant, omnichannel marketing content.”
RedPoint Global’s intelligent customer engagement platform goes beyond marketing with capabilities that lend themselves to other kinds of data-driven engagement organizations. From doctor to patient engagement, to smart car and emergency services communication, RedPoint Global’s growth path is wide open.
1 A Technology Guide to Turn Data into Customer-Obsessed Action, Forrester Research, Brian Hopkins, March 17, 2016
OUR SECRET SAUCE IS BEING ABLE TO SEAMLESSLY BRING TOGETHER OMNICHANNEL CAMPAIGN MANAGEMENT, DATA MANAGEMENT, AND MACHINE LEARNING, IN ONE POWERFUL PLATFORM.
THE NEXT BIG MARKETING TECH OPPORTUNITY RESIDES IN THE B2C MARKETING SPACE, WHERE THE NEED FOR A DATABASE OF RECORD, REAL-TIME ANALYTICS AND CROSS-CHANNEL EXECUTION CONVERGES.
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HEY, DID YOU SEE THIS?
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JOOMLA March 21, 2015
Joomla, a content management system (CMS) that enables users to build websites and powerful online applications, has released version 3.5 with nearly three dozen new features. The website will now function much faster, and the new version will offer PHP 7 support. New features include email notifications, the ability to export anonymized Joomla system information, increased usability around modules and images, and much more. Ultimately, this update will improve user experience for both developers and administrators.
CARTA WORLDWIDE February 12, 2016
Carta Worldwide, a provider of digital transaction processing and enablement technologies, is allowing innovation giants PayPal and Vodafone to open the Vodafone Wallet to millions of PayPal customers across several geographical markets. At some point during 2016, millions of PayPal customers will be able to add their account to the Vodafone Wallet, which will enable them to pay contactlessly with their smartphone. Vodafone provides highly secure mobile payments at the physical point-of-sale.
ENTRADA February 25, 2016
Entrada, a provider of integrated mobile solutions that improve healthcare efficiencies and outcomes, released Rhythm, which is a revolutionary new way for caregivers to complement their preferred clinical workflow with both front-end and back-end mobile dictation. This new product eliminates the inefficiencies of traditional front-end speech and allows the user to be fully mobile. Rhythm can also equip the entire coordinated care team with mobile documentation at the point of care. Caregivers now have the ability to truly operate at the pulse of patient care with a solution that easily can be interwoven into their unique workflow.
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HEY, DID YOU SEE THIS? (CONTINUED)
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ZAPIER February 16, 2016
Zapier, an automation platform that syncs apps and enables them to talk to each other, has announced its new Multi-Step Zaps. This will now allow users to chain as many actions as desired to a single trigger, which means users will no longer be limited to just one-to-one connections. There is now the ability to mix-and-match data from multiple apps and route all essential information to a dedicated hub. Zapier has also enabled code integration to let customers write simple code for tasks like formatting names or email addresses and converting dates to relevant formats of different countries.
SMARTRECRUITERSMarch 1, 2016
SmartRecruiters, a talent acquisition software platform, has announced its inclusion as an inaugural member of the LinkedIn Talent Solutions Preferred Partner program. As a part of this program, SmartRecruiters is recognized as an advanced Talent Acquisition Platform that supports some of LinkedIn’s most important products, including LinkedIn Recruiter and LinkedIn Referrals. SmartRecruiters enables deep integration with LinkedIn, allowing the ability to see an applicant’s LinkedIn profile directly from SmartRecruiters, posts to be automatically fed into LinkedIn’s Referrals portal, and jobs created to be instantly posted to LinkedIn.
VERISAE December 15, 2015
Verisae, a global provider of maintenance, machine to machine monitoring, and mobile workforce solutions, announced its latest product release, featuring large rollouts planning tools, service process brokering streamlining and a growing library of IoT APIs. Verisae’s Work Order Marshalling provides a wide view of the project that allows planners to look at month- or year-long timelines and large geographical areas. This new feature enables planners to review and filter large volumes of work, as well as group and assign large sets of work orders for the planned timeframe. Verisae is focusing on collaborative development with customers to reinvent the service supply chain.
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SELECTED FEBRUARY M&A TRANSACTIONS IN JEGI TECH COVERAGE
BUYER SELLER TARGET DESCRIPTIONENTERPRISE VALUE
($MM)
IBM Truven Health Analytics (Veritas Capital) Healthcare analytics SaaS & services $2,600
ResMed Brightree Medical billing SaaS $800
Insight Venture Partners Diligent Confidential document collaboration SaaS $624
Microsoft Xamarin Mobile application development SaaS $400
Web.com Group Yodle Digital marketing & Web design $342
CalAmp LoJack Vehicle tracking systems & services $134
AMETEK ESP/SurgeX Power protection & monitoring systems $130
RealPage NWP Services Resident billing & payments SaaS $70
Control4 Pakedge Device & Software Networking management systems & software $33
Synoptek (Sverica) EarthLink (IT services business) IT services assets $29
Micronet Enertec Technologies Novatel Wireless (telematics business) Wireless M2M carrier infrastructure $24
BroadSoft Transera Communications Call center management SaaS $20
Deals with Values (by size)
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SELECTED FEBRUARY M&A TRANSACTIONS IN JEGI TECH COVERAGE (CONTINUED)
BUYER SELLER TARGET DESCRIPTION
Aon Hewitt Modern Survey Employee management & feedback SaaS
Apple LegbaCore Security integration services
Blackhawk Network Holdings NimbleCommerce White-label e-commerce SaaS & services
BluePay Processing (TA Associates) Billhighway Payment processing & accounting SaaS
Clickable (Syncapse) Talkwheel.com Social media analytics & engagement applications
Data Intensity (Audax Private Equity) Enrich Oracle ERP systems integrator
Decision Resources Group (Piramal) Adaptive Software Pharmacy benefits management SaaS
Deloitte Digital (Deloitte Consulting) Heat Digital & traditional marketing services
Eventbrite Queue Ticketing Ticketing & venue management SaaS
Garmin DeLorme (assets) Satellite GPS mobile device assets
GoPro Vemory (Splice mobile application assets) Video editing mobile app
Heartland Payment Systems Beanstalk Data Restaurant marketing automation SaaS
Hired ZLemma Job candidate scoring SaaS
Hulu (News Corporation/NBC/Disney) Vhoto GIF creation mobile app
Invoice Cloud (Summit Partners) Metropolitan Communications Municipality online payment SaaS
Oracle Corporation Ravello Systems Application virtualization SaaS
Palantir Technologies Kimono Labs Web analytics SaaS
Pivotal Software (EMC/VMware) Neo Innovation Software development & UX services
Rakuten Marketing (Rakuten) Manifest Marketing recommendation software & SaaS
Reynolds and Reynolds (Vista/Goldman Sachs) ReverseRisk Automotive dealership analytics reporting SaaS
salesforce.com TappingStone Open-source machine learning server
Sprinklr Postano (TigerLogic) Social media analytics SaaS
Summit Partners Perforce Software Source code management software & SaaS
TriTech Software (Insight Venture Partners) Omega Group (Trimble Navigation) Public safety GIS software
Vencap Technologies Allant Group (MidOcean Partners) Marketing automation software & SaaS
Verint Systems Contact Solutions Customer service automation software
Deals without Announced Values (alphabetical by buyer)
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ABOUT JEGI
JEGI has been the leading independent investment bank for the global software, tech-enabled services, media, marketing and information sectors for more than 28 years. Headquartered in New York, with offices in Boston and London (via its partnership with Clarity), JEGI has completed more than 600 high-profile M&A transactions, serving global corporations; middle-market and emerging companies; entrepreneurial owners and founders; and private equity and venture capital firms.
We provide clients with a global network of prospective buyers and senior decision-makers, as well as vast industry knowledge, perspective and intelligence. This affords our clients seamless access to deep market insights and a wealth of M&A experience, enabling us to deliver the highest closing rate in our industry and drive strong valuations.
For more information, visit www.jegi.com.
600Over the past 28 years, JEGI has completed more than
M&A transactions, serving global corporations; middle-market and emerging companies; entrepreneurial owners and founders; and private equity and venture capital firms.
TECH M&A UPDATE MARCH 2016
Wilma JordanFounder & [email protected]
Jeff BeckerManaging [email protected]
Scott [email protected]
Tom PechtManaging [email protected]
Tolman [email protected]
Richard MeadManaging [email protected]
Adam [email protected]
David ClarkManaging [email protected]
Bill [email protected]
Amir AkhavanManaging [email protected]
Joseph SanbornManaging [email protected]
LONDONClarity, 90 Long Acre London WC2E 9RA +44 20 3402 4900 | www.claritycp.com
NEW YORK JEGI,150 East 52nd Street18th FloorNew York, NY 10022 +1 212 754 0710 | www.jegi.com
BOSTON JEGI, CIC Boston, 50 Milk Street16th FloorBoston, MA 02109+1 617 294 6555 | www.jegi.com
SELECT RECENT JEGI TECHNOLOGY TRANSACTIONS
Allant Group is a leader in data and analytic driven marketing and advertising services.
ecVision is a cloud-based provider of global sourcing and collaborative supply chain software solutions.
Knowledge Advisors is a pioneer and leading SaaS provider of talent analytics to HR and C-level professionals.
Instantly is a leading provider of online and mobile audiences and insights technology tools.
Iron Solutions is a leading software and data provider to the agriculture market.
Jun Group is a leading mobile video and branded content advertising platform.
RKG is a leading tech-enabled search and digital marketing agency.
Infogroup is the leading provider of sales enablement and business intelligence SaaS solutions.
Selligent is an international SaaS platform delivering omnichannel audience engagement.
ViryaNet is a leading provider of mobile workforce management solutions for field service.
ePrize is a leader in digital engagement, specializing in promotions and loyalty campaigns.
erecruit is a leader in enterprise staffing software and vendor management systems for large staffing firms.
Distimo is a leading mobile app market intelligence and analytics provider.
Mspot is a pioneer and leader in mobile entertainment services.
Soonr is a leading provider of enterprise secure file sharing and collaboration services for IT business managers.
onPeak is a leading event housing software and services provider.
MyWebGrocer is a leading provider of shopping and shopper marketing software and services.
Note: Some of the transactions highlighted above were completed by JEGI Managing Directors Joseph Sanborn and Jeff Becker, prior to joining the firm.
Resource/Ammirati is a leading, US-based digital marketing and creative agency.