M&A Alert—May 31, 2016
Vista Equity Partners acquires marketing automation software provider Marketo for $1.79B
Author: Eric Risley, Chris Risley, Charlie Andre
Transaction Size: $1.79B
On May 31, 2016, Vista Equity Partners entered into a definitive agreement to acquire automated marketing software provider Marketo (NASDAQ: MKTO; market cap: $1.56B) for a total consideration of $1.79B. Vista Equity Partners is paying $35.25 per Marketo share, representing a 64 percent premium over its May 9th closing price.
Marketo helps clients with inbound marketing, lead management, and social marketing by providing customers with automated email marketing, instant CRM integration, sales dashboards, marketing ROI reporting and analytics, and automated services. Customers specify criteria and outcomes for tasks which are then interpreted and executed automatically through its cloud-based platform. Marketo’s competitors include Oracle, HubSpot, Act-On Software, Adobe, and Salesforce.
After raising a total of $108mm in venture capital from Battery Ventures, Storm Ventures, InterWest Partners, Institutional Venture Partners, and Mayfield Fund, Marketo went public in May of 2013 at $13.00, representing an enterprise value of $607.4mm for an EV/2013 revenue multiple of 6.33. They currently have 12,919 corporate customers. Marketo projects 2016 revenue between $269mm and $275mm. The San Mateo, CA company was founded by Phil Fernandez, Jon Miller, and David Morandi in 2006.
Vista Equity Partners manages over $24B in cumulative capital investments, primarily in the data, software, and technology markets. Vista Equity Partners previously acquired two other marketing-related companies, Main Street Hub and Mediaocean. The San Francisco firm was founded by Robert F. Smith and Brian Sheth in 2000.
Vista Equity Partners acquired Marketo for $1.79B ($35.25 per share) in an all-cash deal. LTM revenue was $226.1mm and EBITDA loss was $53.8mm.
Transaction Value: $1.79B
TV/LTM Revenue: 7.9x
TV/2016 Revenue: 6.6x
Premium to Stock Price: 64%
Comparable transactions include Salesforce’s acquisition of ExactTarget in June of 2013 for $2.5B (8.6x Rev), Oracle Corporation’s acquisition of Eloqua in December of 2012 for $871mm (9.1x Rev), and Act-On’s acquisition of Marketbright in July of 2011 for an undisclosed amount.
Vista Equity Partners is a private equity firm with clear financial return objectives. Given Marketo’s relative large scale, we would anticipate VEP will use it as a platform for future marketing technology acquisitions.
Architect Partners’ Observations
This is a unique transaction profile for a private equity firm. First, Marketo has never in its 10 year history been profitable, making it unlikely to attract a cash-flow-minded private equity. Second, the valuation at 6.6x projected 2016 revenue is extremely high for a private equity acquisition. This is really much more in line with the profile of a late stage private company growth capital financing.
Since going public, Marketo’s valuation has seen significant fluctuations. Marketo made its public debut at $13.00 per share, and it closed that day at $20.00. By January 2014, Marketo would peak at $42.68. The stock then settled to between $25 and $33 a share until the end of 2015 before dropping as low as $14.82 in early 2016 as we experienced the broader market correction.