Shortly after rumors surfaced last week in the Atlanta business press, IBM announced today that they are acquiring Silverpop, a leading provider of cloud-based email and marketing automation services.
What’s behind this deal? Read on.
The acquisition scene in the marketing technology field has kept a pretty brisk pace, and it’s been a favorite parlor game to guess where firms like Silverpop, Marketo or HubSpot might wind up. Well, now we know – while terms haven’t been released, public reports indicate that IBM paid an acquisition price of just under $300 million for Silverpop, or about 3x on revenues. (More on that at the end of the post.)
Coming right on the steps of the Adobe Digital Marketing Summit and Marketo Marketing Nation (reaction post here), the timing of this acquisition couldn’t make any plainer the stakes for the four majors in the marketing technology field: IBM, Adobe, Oracle and Salesforce.
For IBM, Silverpop adds a whole new set of customer communication capabilities. While IBM has long offered an email service provider (ESP) capability with its eMessage product (inherited from the acquisition of Unica), Silverpop adds more sophisticated email campaign capabilities combined with a slap-your-momma simple marketing automation platform in its Engage module.
But to really understand the strategy behind this acquisition, it’s important to understand the current context at IBM. Big Blue is also charging hard into mobile technology: it announced its MobileFirst group in 2013 as a cloud-based development platform, and since then has added to it with acquisitions of The Now Factory (mobile experience analytics), Trusteer and Fiberlink (security). Back in October, IBM also acquired Xtify, which enables mobile messaging and push notifications to customers. Xtify technology is currently being integrated into IBM’s Digital Marketing Optimization platform.
In short, IBM is looking way beyond just email. While Silverpop is best known as an ESP, its core ability to deliver automated delivery of targeted customer messaging isn’t theoretically limited to just that channel. With this acquisition, IBM strengthens its capabilities on two fronts: both the actual delivery of messaging to customers (via email, SMS or mobile messaging, social channels, whatever), and how they are targeted.
Think about it: IBM already offers a leading digital analytics platform (Digital Analytics, formerly known as Coremetrics), as well as the biggest campaign management tools by market share (Campaign and Interact), a major e-commerce suite (WebSphere Commerce) and web content manager (Digital Experiences/WebSphere Portal). What’s more, these capabilities are already integrated, which gives IBM a solid head-start on most competitors who are just beginning the tough slog of integration processes. Only Adobe really has most of these components already in place, and is working hard on integrating them too, as we heard at their summit the other week.
Combining individual customer behavioral data via Digital Analytics, Tealeaf, WebSphere, Campaign, or other solutions to come – all of which are already using common customer profiles – thus dramatically enhances the ability for Silverpop to improve the relevancy and right-time delivery of messages to customers, when and via the medium that they want it in. And that is a very powerful story.
What I found particularly interesting about this acquisition was, frankly, the price. Oracle purchased Responsys for $1.5 billion, and Salesforce acquired ExactTarget for $2.5 billion (and took a $300 million loan to do it). Both Responsys and ExactTarget had higher FY 2012 revenue than Silverpop with different cash flow trends, but nevertheless sold at whopping revenue multiples of 9.1x and 8.6x, respectively. Oracle also bought Eloqua for $870 million (roughly 10x revenue multiple) and Adobe acquired Neolane for $600 million (an eye-watering 10.5x multiple).
By contrast, IBM’s acquisition of Silverpop reportedly represents “only” a roughly 3x revenue multiple, which fits right into a pattern of low single-digit multiples in its acquisitions going back to Tealeaf, Unica and Coremetrics as well. I think this represents two things:
- IBM is clearly using a different business case, and probably ROI timeline. (That is to say, they have an ROI timeline at all, which itself may be unique.) Or, hey, it’s also possible that IBM just has better M&A negotiators.
- Oracle, Adobe and Salesforce may be building strong businesses, but not necessarily near-term profitability. Their acquisition strategies seem to be one part business case, one part (big surprise!) marketing, which is pushing a valuation bubble for enterprise marketing technology firms that bulges or wanes depending on the suitor. If Salesforce ever makes a play for Marketo, I think we can expect a double-digit multiple at least.
My personal theory is that it’s only a matter of time until Microsoft enters this market as well. Until recently, they have been very publicly beset with leadership changes and something of an existential crisis, which may explain their reluctance to make a big acquisition entry. Nevertheless, they’re the only legacy enterprise software vendor who hasn’t made a strong play into the marketing technology field, and I suspect that it’s only a matter of time.
Agree? Disagree? Let me know below!