Account-based marketing could spur the next phase of martech M&A, Part 1

Account-based marketing (ABM) is gaining popularity among marketers and developers because today's technologically assisted version is based on the sensible practices honed over decades using manual methods. It also helps that ABM is a B2B discipline geared toward bridging the quality gap between marketing and sales leads. But it is not a simple task to assemble an ABM service. Each is made up of pieces – data management, analysis and engagement – that come from separate but related vendors. As marketers come to understand the broad contours of ABM technology, providers will start to standardize and consolidate. The fragmentation of the market means that there are opportunities for firms in the marketing technology (martech) space to acquire technologies to augment their portfolios.

Players in the ABM sector tend to be small and narrowly focused. ABM can be thought of as a marketing-to-sales pipeline management methodology rather than a strict product category, even though many firms participate in this segment. Rather than offering an overall ABM service, vendors have tackled the specific bottlenecks in that linear process. The result is that ABM tools look very different from one another, leveraging various technologies depending on which end of the process they are seeking to optimize.

This is the first of a two-part report exploring potential acquisitions of marketing software companies that specialize in ABM. It focuses on the (few) past deals and potential targets. In part two, we discuss the potential acquirers.

The 451 Take

Fragmentation among account-based marketing vendors – along with a diversity of features and specialties – makes this segment a likely candidate for future M&A activity. The largest players in the space, those with broad platforms, have the option of cherry-picking from their partner ecosystems to add specific capabilities to their portfolios. Or they can select from the wider second rung of companies to add a broader B2B or ABM suite to their offerings.

Context

The currently fractured vendor landscape is coalescing around a set of interlocked ecosystems that combine specialized point services with more general marketing automation platforms. There is an emerging consensus among providers that marketers need to be able to connect their account-based marketing tools to the systems that manage campaigns, orchestration and, often, the reporting layer.

A diverse and heavily funded startup scene has put machine learning and data analysis to the task of account scoring. Some have leaned toward data enrichment, combining first-party account databases with vast third-party resources to identify both buying signals and the specific accounts (or people within them) that exhibit desirable characteristics. ABM point service firms regard working with broad platform providers like Adobe, Salesforce and Oracle as essential because those companies hold the sales and marketing databases and have established sales channels into marketing, but have been slow to build out ABM functionality. For the largest players, it has made more sense to leverage the startup marketplace as a feature laboratory and incubator for the next generation of marketing automation M&A.

Past deals

Enthusiasm for marketing software consolidation has abated after years of working from the alluring and deceptive premise that CMOs would be outspending CIOs by now. Activity remains robust, although valuations have declined precipitously from earlier parts of this decade, when the largest enterprise software vendors were tripping over each other to fill out their marketing portfolios.

In the two largest deals in the category over the past 24 months, Marketo ($1.8bn) and Sitecore ($1.1bn) were both scooped up by private equity (PE) firms. Compare that with the previous 24-month period, when Oracle and Salesforce inked the two biggest transactions and no PE shop (or portfolio company) made an acquisition beyond $150m. In the 20 largest marketing software deals for the 24 months ending in May, buyers paid a median multiple of 2.6x trailing 12-month revenue. According to 451 Research's M&A KnowledgeBase, that's barely half the multiple paid on the 20 largest from the 24-month period ending in May 2015.

Account-based marketing could provide some counterweight to this trend. As ABM techniques and the software tools needed to carry them out gain prominence, a few enterprise software vendors could take a second bite at the apple. Take IBM, for example. The company invested in building a marketing cloud – through the purchases of Coremetrics, Silverpop and others – and hasn't created as large a marketing presence as Adobe or Oracle.

ABM has yet to generate the kind of strategic acquisitions that enterprise software providers built their marketing practices on. So far, the few transactions that fall under that heading have been tuck-ins. Marketo made a pair of pickups (Insightera and ToutApp), as did venture-backed Demandbase (WhoToo and SpiderBook). We'll likely continue to see those kinds of modest deals as most ABM vendors, aside from a few that we detail below, are still in the early stages of producing revenue and most will be challenged to mature as they fight in a heavily funded and lightly understood segment of marketing.

Potential targets

Demandbase is a broad ABM and B2B platform provider with its own ecosystem of niche vendor partners. The company could be a smart addition for several of the bigger players in the martech space, as it is likely the largest ABM pure play in the market. We estimate that it finished 2016 with $55m in revenue. Partly VC-funded by Adobe, Demandbase has raised $93m in six rounds since 2008. If matched with Adobe, it would instantly bring B2B credibility to a firm now competing to offer the de facto platform for the business of digital marketing. The company also has relationships with Oracle, Marketo, Salesforce, IBM and SAP, and might be an attractive complement for any of those vendors.

Companies like Bombora present enticing options to firms that have campaign execution and orchestration capabilities, but need data to enable B2B lead optimization. Bombora tracks the research behavior of 1.2 million businesses, and can identify when an organization is 'surging' in interest on specific B2B topics. Salesforce has integrated Bombora's feed into Data.com, and Bombora is an AppExchange partner, in addition to being a source of user-level data for many advertising, marketing and sales enablement apps.

Another option is Integrate, which makes Demand Orchestration Software that centers around a dashboard for marketers in different roles that organizes the collection of relevant data sources, and synthesizes it into meaningful prospect data. Integrate is a good candidate for acquisition because it controls the software connections through the desktop to applications for ABM, content creation, lead scoring, CRM or marketing automation.

Likely targets also include numerous smaller players in the component areas – data management, analysis and engagement – that could also be looking to make combinations that would allow them to quickly grow within the comfortable environs of a larger ecosystem. Data management specialists like the aforementioned Bombora, for example, might be looking to build more complete portfolios for collection and lead scoring. Bombora provides real-time customer intent – data that companies such as Lattice Engines embed into their sales intelligence app, for example. Those two might make healthy targets, together or separately, for a vendor that specializes in campaign execution or sales enablement. Others like them include 6sense, Madison Logic, Domo and Integrate.

In the analysis segment, potential targets include Mintigo, a startup that came out of the Israeli military's data science research. The company could provide an opportunity for an acquirer to leverage predictive analytics in contexts broader than ABM, including sales enablement or marketing campaign execution. Similar firms include Full Circle Insights and Infer.

And on the engagement side, niche players like Engagio and Evergage may be sought out by bigger players to create tighter integrations and a more complete market story. Others in this category include Infusionsoft, Act-On and Aprimo.

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