Responsys Draws Deal Talk After Salesforce Bet: Real M&A
Investors are betting Responsys Inc. (MKTG) and Constant Contact Inc. (CTCT) will be the next targets for companies seeking to beef up their online-marketing technology after Salesforce.com Inc. (CRM)’s $2.5 billion purchase of ExactTarget Inc.
Responsys posted the seventh-biggest gain in the Russell 2000 Index (RTY) and Constant Contact rose to a three-month high on June 4 after Salesforce announced its largest takeover ever, according to data compiled by Bloomberg. Both Responsys and Constant Contact are projected to boost revenue by more than 55 percent in the next three years as more businesses turn to e-mail, mobile and social-media marketing technologies.
E-mail marketing spending in the U.S. may reach $2.5 billion by 2016, up 46 percent from last year, according to Forrester Research Inc. For buyers interested in ExactTarget’s technology, Responsys facilitates similar campaigns for customers including Southwest Airlines Co. and Whole Foods Market Inc., said Robert W. Baird & Co. SAP AG (SAP) and International Business Machines Corp. had both looked at ExactTarget, said people familiar with the matter. Constant Contact, which caters to small businesses, could appeal to acquirers such as NetSuite Inc. (N) or Intuit Inc. (INTU), according to Roth Capital Partners LLC.
“Marketing dollars are shifting and are more and more inclined to be digital,” Steven Ashley, a Milwaukee-based analyst at Baird, said in a phone interview. “Large companies are trying to put together more complete suites and offerings of digital marketing services, and that’s what we saw with Salesforce buying ExactTarget. There could be other activity.”
Responsys, which had a market value of $524 million yesterday, helps large customers deliver marketing through e-mail, mobile devices, social media and the Web. The San Bruno, California-based company posted $163 million of revenue in 2012, less than ExactTarget’s $292 million.
Constant Contact of Waltham, Massachusetts, specializes in e-mail and social-media marketing for smaller businesses and helps them promote events and send out daily deals. The company, which was valued at $486 million yesterday, had 2012 revenue of $252 million.
Today, Responsys shares surged 12 percent to $11.93, the highest closing price in almost 11 months. Shares of Constant Contact gained for a fourth day, adding 2.8 percent to $16.29.
By 2015, consumer-technology businesses will have switched a third of their traditional marketing budgets to digital, Stamford, Connecticut-based market researcher Gartner Inc. estimated in a Dec. 17 report.
That’s already spurring companies such as Salesforce to make acquisitions. Before ExactTarget, Salesforce bought social-media marketing companies Buddy Media Inc. and Radian6 Technologies Inc. Oracle Corp. bought online marketing companies Eloqua Inc. and Vitrue Inc., and IBM (IBM) got Kenexa Corp., which lets businesses recruit workers with social media.
“You spend where the eyeballs are,” and that’s on the Web, Baird’s Ashley said.
“If you look at publicly traded companies that have interactive marketing solutions, there are only a few,” he said.
Heather MacKinnon, a spokeswoman at Responsys, said the company doesn’t comment on market speculation when asked whether it’s been approached by suitors or is considering a sale. Constant Contact’s Erika Tower didn’t return a phone call or e-mail seeking comment.
SAP, the biggest maker of business-management software, considered buying ExactTarget and then decided not to proceed, according to a person familiar with the matter who asked not to be named because the process was private. A day after Salesforce announced its ExactTarget deal, SAP said that it’s buying Switzerland-based Hybris AG to bolster its electronic commerce applications.
Jim Dever, an SAP spokesman, declined to comment on whether the company would target other online-marketing companies. Co-Chief Executive Officer Bill McDermott said on a conference call yesterday that he and other CEOs usually throw marketing e-mails into the spam bin, calling rivals’ moves “quite puzzling.”
Companies such as Adobe Systems Inc. (ADBE) and IBM that serve large corporate clients may want to add e-mail marketing capabilities, Shar VanBoskirk, an analyst at Forrester in Cambridge, Massachusetts, said in a phone interview.
“IBM has tried for years, as has Adobe, to put together an online marketing suite,” she said. “Right now, both of these companies have a similar set of capabilities, but they don’t have a great outbound marketing capability. They want to create a comprehensive platform.”
IBM also looked at ExactTarget, another person with knowledge of the process said.
IBM’s James Sciales declined to comment on whether the company is considering the purchase of any Web marketing companies such as Responsys or Constant Contact. So did Adobe’s Jodi Sorensen.
Constant Contact’s technology might also appeal to NetSuite or Intuit, Roth Capital’s Schneiderman said. NetSuite’s Mei Li and Intuit’s Diane Carlini didn’t return requests for comment.
The best targets have already been scooped up, according to Tony Ursillo, a Boston-based technology analyst at Loomis Sayles & Co., which oversees about $190 billion.
Online marketing “historically hasn’t been a strength of any of the traditional vendors,” he said in a phone interview. “This is a hole that they all have an interest in filling. But the early movers have gotten the better assets.”
While most of ExactTarget’s sales come from e-mail marketing, it purchased companies over the years giving it a broader suite of products and adding to the appeal for Salesforce, Ursillo said. Responsys isn’t as evolved beyond e-mail, and Constant Contact focuses on much smaller customers, he said. Constant Contact said in its year-end filing that about two-thirds of its customers have fewer than 10 employees.
Still, Jeffrey Houston of Barrington Research Associates Inc. sees more takeovers in Web-based services, often referred to as the cloud, after the purchase of ExactTarget. (ET)
“There are going to be continued acquisitions by large software players because they underinvested in their cloud solutions,” the Chicago-based analyst said in a phone interview.