It has been a big week for MarTech M&A. Yesterday it was announced that Vista Equity Partners is acquiring Marketo for $1.8B. Today, Salesforce announced it is acquiring Demandware for $2.7B.

It is no surprise that Marketo is being acquired, since in early May it was reported that they had hired an M&A advisor to “explore strategic alternatives.” At that time SAP and Microsoft were revealed as potential interested parties. These both made strategic sense. Microsoft could couple Marketo with Microsoft Dynamics (its CRM offering), similar to Salesforce with its Pardot offering. SAP also has a CRM offering that it could integrate with, though the more logical play would be for SAP to enter into the “marketing cloud” space with Marketo as its platform to build around, just as it entered the HR space with its SuccessFactors acquisition in 2012.

So what is surprising is the buyer: Vista Equity, a leading private equity (PE) firm. A “strategic” buyer, such as Microsoft, SAP or IBM, has the ability to layer in more synergies than a “financial” buyer, with both cost reductions (such as eliminating redundant positions and offices) and revenue synergies (such as cross-selling products to existing customers). A PE firm has less synergy “levers” to pull – and therefore typically cannot justify the same valuations that strategic buyers can pay. But Vista paid a “strategic” price: $1.8 billion, a 7x trailing revenue multiple. If this were a typical “PE play” where the firm is focused on profitability, Vista would need to make significant OPEX cuts while maintaining revenue growth in a competitive market. Vista is well known for driving exceptional results utilizing its “specific operational improvements” to optimize the operations of its portfolio businesses, but we don’t believe this is the only play here. At LUMA, we have been receiving an increasing number of PE firms asking to discuss potential MarTech or Ad Tech roll-ups, since these are fragmented ecosystems with many targets. And with VCs pulling back on investments, there is a greater incentive for private companies to sell. Therefore, look for Vista to move aggressively with other MarTech acquisitions using Marketo as its core asset. Now is the time, and Vista has the capital.

The Demandware acquisition by Salesforce is a very smart move that makes perfect strategic sense, though they paid a steep price for it (a 10x revenue multiple and 70% premium to its 30-day share price average). There has long been three leaders in the eCommerce platform space: IBM with its WebSphere Commerce offering, Oracle with its ATG acquisition and SAP with its Hybris acquisition. But all these are largely on-premise software solutions. Demandware has been the up-and-comer in the market and is a cloud-based solution that fits Salesforce’s “no software” mantra. More importantly, it is extremely complimentary to its Exact Target business. What is the top marketing channel with the highest ROI used by retailers? Email. While Demandware will also logically fit with Salesforce’s Sales and Service Clouds, it is the combination of the Marketing Cloud (Exact Target) with Demandware that will drive the most value. This acquisition definitely changes the dynamics in the battle of the marketing clouds, with only Adobe now lacking an eCommerce platform offering.

As mentioned above, the fundraising environment has been tightening for MarTech companies, and is even more constricted for Ad Tech start-ups. The number of investments are down, as are average valuations. This, plus the fact that both categories are very fragmented with thousands of players, has created a target-rich acquisition landscape of willing sellers. Additionally, at LUMA we have been discussing for some time how the buyer universe has been expanding, as shown in the graphic below.


Now add private equity to the mix – and expect many more deals to come!