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$1.79bn deal buys Marketo time to develop enterprise platform

Phil Wainewright Profile picture for user pwainewright May 31, 2016
Marketing automation cloud vendor Marketo today revealed it has accepted a $1.79 billion private equity buyout so it can focus on a new enterprise platform

Marketo CEO Phil Fernandez unveils Project Orion
Marketo CEO Phil Fernandez unveils Project Orion

Confounding rumors of an impending acquisition by the likes of Microsoft, SAP or Adobe, marketing automation cloud vendor Marketo today revealed it has opted for private equity ownership.

The company has accepted an all-cash offer from Vista Equity Partners, which already owns a broad portfolio of technology companies including Misys, Solera, Tibco and, most recently, cloud-based event management provider Cvent. The $35.25 per share purchase price values Marketo at $1.79 billion and represents a 64% premium to the closing price on May 9th, the day before reports of a possible sale triggered a spike in the Nasdaq-listed stock price. The transaction is expected to close in the third quarter of 2016.

Talk of a potential sale had also surfaced in April, and on prior occasions too, but on May 10 news broke that Marketo was working with Morgan Stanley to explore its options. The possibility of a private equity deal only became known late last week.

Enterprise platform

According to the press statement released today by Marketo, chairman and CEO Phil Fernandez says the deal allows Marketo to avoid being swallowed by a larger vendor and to focus instead on developing its recently announced enterprise platform:

The acquisition will allow Marketo to continue to focus on customer success and to remain the independent category leader, continuing to set the agenda for product innovation and thought leadership for the entire digital marketing industry. It will also enable us to successfully deliver on the bold vision we recently set forth — to give tomorrow's marketers and the C-suite an ultra-high-scale enterprise platform for customer engagement.

That platform, codenamed Orion, was launched at the vendor's Marketing Nation conference earlier this month, and according to reports marks a fundamental rearchitecture to support customer engagement at big data scale. CMO Sanjay Dholakia told delegates:

Project Orion is really about Marketo reinventing the scale infrastructure for enterprises to interact with their customers.

It used to be that I might interact with a brand in one, two, five channels — social, mobile, email, Web. That whole paradigm gets blown up in an IoT world — there are literally billions and billions of interactions that a company and a brand can have with their consumers, and they need to be able to process those interactions in real time.

The project is led by chief scientist Shankar Venkataraman, recruited in April from his role as CTO for IBM's analytics platform.

Vast transformation projects

Gerald Murray, research manager at industry research firm IDC, told Marketing Land today that acquisition by Vista would give Marketo the freedom to focus on developing the "potentially transformative" Orion:

To develop Orion, Marketo has devoted a quarter of its engineering staff for the last 18 months. But the payoff is sometime in the future, he said, 'and Wall Street doesn’t like that.'

Before acquisition rumors started swirling, loss-making Marketo's share price had plumbed lows earlier this year just a couple of dollars shy of its May 2013 IPO price. This was despite a comfortable cash position and strong year-on-year growth in the 35-40% range. While the company was feeling some price pressure in the more competitive midmarket space, Fernandez said in April the company saw new opportunities emerging among large enterprises:

What we once called marketing automation has evolved and grown into a whole new thing, a broad, ultra high scale, analytically powered, enterprise customer platform. As such, our technology is rapidly becoming essential to the kinds of vast transformation projects now in the agenda of the CIO and even the CEO.

Marketo's acquirer Vista claims a proven track record "investing in high-growth SaaS platforms," though it also has a reputation for aggressively bearing down on marketing, R&D and staff costs. According to Bloomberg, it is currently raising a new fund of up to $10 billion, "its largest buyout pool to date."

My take

While private equity ownership will doubtless bring new scrutiny on spending and a hard look at the current stock-based compensation regime, it's credible that Marketo's new platform has been the catalyst for this deal. This is exactly the kind of project that skittish public investors lack the patience to follow through.

But while private equity investors work to longer time horizons, they are equally demanding of results. Fernandez and his team have bought themselves some breathing space, but whether it's enough to deliver on their new vision will be put to rigorous test over the next couple of years.

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