M&A Alert—May 1, 2012
Intuit Acquires Demandforce
Author: Architect Partners
Transaction Size: $423.5mm
Demandforce develops a SaaS-based application that allows local small businesses to automate and manage their marketing and customer communications. Customers include classic local businesses such as automotive repair, dental and medical care, professional services, home services, pet care, spas and salons. Capabilities include 1) managing various forms of local marketing via digital channels such as email, SMS text and social media, 2) enabling day-to-day communications with customers such as appointment scheduling and reminders and billing and 3) managing and appropriately disseminating important business profile information and customer reviews to services such as Yelp, CityGrid Media, Facebook, YellowPages, Bing and Google. Demandforce charges its local merchant clients a monthly subscription fee which generally ranges between $200-$300 per month.
Demandforce serves more than 35,000 local businesses. Founded in 2003, Demandforce is based in San Francisco and has raised $11.8mm in funding from Benchmark Capital (Bill Gurley), FLOODGATE (Mike Maples) and Palo Alto Venture Partners (Peter Ziebelman). Upon close of the acquisition, Demandforce’s 300 employees will join Intuit and will become a new division within Intuit’s small business group and will continue to be led by Demandforce’s founder, Rick Berry, who will report to Intuit’s SMB General Manager, Kiran Patel.
Intuit provides a variety of technology solutions to individuals and small businesses. Intuit is historically known for its accounting and payroll products for small businesses such as Quickbooks, TurboTax, Quicken. More than 60% of Intuit’s revenue is generated from online and mobile services (driven by products including TurboTax online and GoPayment). Recently, Intuit has focused on expanding its online/mobile product offerings for small businesses. In April 2012, Intuit acquired AisleBuyer, a mobile commerce platform for small businesses. The acquisition of Demandforce is the largest in Intuit’s CEO Brad Smith’s tenure.
Intuit will pay $423.5mm in cash. Demandforce reported 80% year-over-year in revenue growth for calendar year 2011.
Enterprise Value: $423.5mm
EV/2011 Revenue (a): 15.1x
a) Architect Partners estimates Demandforce’s 2011 revenues at approximately $28mm. Inc reported Demandforce’s 2010 revenue at $15.3mm and Demandforce disclosed that revenues have been growing at an 80% annual rate.
Recent comparable M&A includes SaaS application vendors such as SAP’s acquisition of SuccessFactors for $3.5 billion (12.0 times revenue) and Oracle’s purchase of RightNow Technologies for $1.5 billion (7.0 times revenue) and Taleo for $1.8 billion (5.7 times revenue).
Somewhat comparable local commerce M&A transactions include Green Dot’s $43mm acquisition of Loopt in March 2012, SingTel’s $321mm acquisition of Amobee in March 2012, Home Depot’s $80mm acquisition of Red Beacon in January 2012 ad Constant Contact’s acquisition of Cardstar in January 2012.
The transaction is expected to add one to two percentage points to Intuit’s revenue growth in FY 2013 and to be neutral to modestly dilutive for EPS in FY 2012 and FY 2013.
Intuit has long served the needs of small businesses. Demandforce provides Intuit with a well established and broad product offering to address the digital marketing and customer support needs of a wide variety of local merchants and service providers.
Architect Partners’ Observations
Demandforce has developed an impressive set of product capabilities to serve the needs of real-world local merchants and service providers. Their value proposition is well demonstrated by their customer count of 35,000 businesses.
This is a very important transaction in our minds for several reasons. First, Demandforce has clearly demonstrated that it is quite viable to sell to and serve local merchants and service providers in spite of the challenge of a dispersed customer base and low average per customer revenue. Second, Demandforce’s product offering provides for a variety of needs of local merchants and service providers which we see as an increasingly necessary differentiator in a market saturated with point products. Third, Intuit’s move brings a whole new level of legitimacy to the local solutions market and will likely be an important catalyst to additional strategic moves by others.
Again, one of the most important lessons learned here is that companies are most often acquired by those that already know them well. Demandforce and Intuit have been building both business and personal professional relationships for some time.