M&A Alert—November 5, 2015
Neustar agrees to acquire marketing analytics company MarketShare for $450 million.
Author: John Ascher-Roberts, Eric Risley
Transaction Size: $450mm
On November 5, 2015, Neustar (NYSE: NSR; market cap: $1.57 billion) announced an agreement to acquire MarketShare Partners for $450 million.
MarketShare helps chief marketing officers allocate marketing spend by analyzing the effectiveness of specific marketing efforts, both online and offline, in driving new sales. In short, “Marketing Spend Allocation, Attribution and Optimization”. Both Forrester Research and Gartner Group have recognized MarketShare as a leader in this area.
The company has over 80 clients across a broad array of industry segments and includes Twitter, Google, Best Buy, Ford Motors, Neiman Marcus, Dell, DirecTV, T Mobile, Mastercard and Intel among others.
Competitors include established players like Google, Adobe, SAS, eBay Enterprise and AOL, as well as emerging companies such as Visual IQ, ThinkVine, Beckon and Origami Logic.
The company was founded in 2005 and is based in Santa Monica, CA. Wesley Nichols (Co-CEO), Jon Vein (Co-CEO) and Dominique Hanssens (Partner) founded MarketShare Partners. The company received 6 rounds of funding totaling $96 million from two investors: Elevation Partners (Adam Hopkins, Ted Meisel) and FTV Capital (Aly Lovett, Bradford Bernstein). MarketShare revenue grew at a compounded annual growth rate of 38% from 2011 to 2014 and generated $57 million in revenue and an EBITDA loss of $14mm for the last twelve months ending September 30, 2015.
Historically a telecommunications carrier data management provider, since 2010, Neustar has rapidly transformed itself into a leading marketing data services company via he acquisition of Aggregate Knowledge in October of 2013 for $199 million (1.6x invested capital) and Targus Info for $650 million (4.4x revenue) in October of 2011, covered in our M&A alert.
Lisa Hook, President and CEO, was the key executive sponsor of the transaction. Neustar has a market cap of $1.6 billion and currently trades at approximately 1.5x revenue. MarketShare and Neustar have had a previous business partnership in place since mid-2015.
Neustar is acquiring MarketShare Partners with a combination of cash, stock and $350 million of committed debt financing. While the transaction value is $450mm, favorable tax credits which accrue to Neustar will result in an effective purchase price of $390mm. Neustar disclosed that expected 2016 revenues for MarketShare will be approximately $91mm. The transaction is expected to be EPS dilutive until calendar year 2017.
Comparable transactions include Adobe’s recently announced acquisition of comScore’s Digital Analytix business in November 2015 (undisclosed value), AOL’s acquisition of Convertro in May of 2014 for $101 million (20.2x invested capital) and Google’s acquisition of Adometry in May of 2014 (undisclosed value).
MarketShare offers marketing analytics software that helps the most senior members of the marketing department answer essential questions such as a) how much should we spend on marketing? b) where should we spend it? and c) how does that spend translate into new revenue? The focus on answering critical high level questions offers Neustar an opportunity to have a far more strategic discussion with senior decision makers within their clients.
MarketShare also brings the ability to assess the effectiveness of offline marketing efforts which complements Neustar’s digital marketing emphasis, enabling a global perspective of all marketing efforts.
Architect Partners’ Observations
The stock market registered its concerns with the stock down 14% the day following announcement. A few factors are likely playing into investor sensitivity. First, this represents the third acquisition announced by Neustar in the past 3 months, an extraordinarily high activity level for a company of this size. Second, this transaction is expected to be dilutive to 2016 estimated earnings per share. Lastly, financing the acquisition results in a significant reduction of its current cash reserves and will be financed largely with newly issued debt.