By Alkali Partners’ Chris Skubic and Derek Heinonen
In January 2022, Vancouver’s Unbounce made news with its acquisition of LeadsRx, a U.S.-based marketing analytics SaaS platform that evaluates marketing performance across touchpoints and channels. The marketing technology (martech) acquisition has potential to be a game changer for the small- and mid-sized businesses composing the bulk of Unbounce’s clientele. It also serves as a signal for what the future may hold for this burgeoning sector.
More than 8,000 martech companies are competing in a crowded space, and differentiation is challenging at best. In an environment where everyone seems to be offering something similar on the surface, martech companies can expect fewer unsolicited bids from strategics and PE firms. This creates pressure on founders to distinguish themselves when seeking an opportunity to sell. Unbounce’s acquisition activity and LeadsRx’s ability to stand out, however, provide lessons for other companies in positioning themselves in a favorable light.
Engage a Partner Who Can Tell Your Story
For companies that are looking to sell, differentiation is key. As founders typically do not have the time or resources to know every player in the field, collaborating with an advisor can help frame their business models to stand out from the competition. Experienced advisors use research and data-driven analytics to fully understand markets and opportunities. Advisors also create a competitive bidding environment to drive up valuations and improve deal structures for the seller.
LeadsRx enlisted investment banking firm Alkali Partners to tell its story to Unbounce and other suitors. For Alkali Partners, it was important to learn into how LeadsRx fit into a potential buyer’s future and then craft a vision based on that research. In addition to understanding of the industry and marketplace, Alkali Partners modeled revenue synergies for each acquisitional contender. Analysts invest an immense amount of time to create a powerful narrative to elevate a founder’s company above the rest. Value optimization and compelling storytelling helps a buyer justify price increases, in-turn boosting seller proceeds.
Show You Can Monetize Your Data
Owned datasets, particularly first-party data, are invaluable for understanding customer behavior and developing AI applications. They are also increasingly valuable in the marketplace. LeadsRx data-ownership practices made them more attractive to a buyer like Unbounce.
Sellers with data-ownership rights and ongoing agreements, such as annual contracts, provide assurances for both future revenue streams and value-added opportunities. Founders should ensure that they have data ownership and commercial use rights as part of their customer agreements, while also respecting privacy constraints. An advisor can assist founders in navigating these challenges.
Demonstrate a Recurring Revenue Model
It is common to see martech companies position themselves as SaaS entities, which usually implies a recurring-revenue model. Upon deeper investigation, particularly for adtech companies, revenue streams are often usage based. Although companies may notch earnings with each transaction, this model is typically not as attractive to a potential buyer as a recurring-revenue model, which offers a steady and predictable income source.
Beware of Customer Churn
Potential buyers in evaluate customer longevity to determine the ongoing relevance of a product or service. Therefore, before seeking a buyer, sellers should thoroughly assess customer churn rates. If rates are high, founders should research reasons for churn and implement measures to reverse the trend. Maximizing customer retention, through annual contract adoption or customer success team implementation, can potentially outweigh revenue importance when determining a company’s valuation.
Consider Partners with International M&A Experience
Vancouver’s martech scene is strong and international M&A opportunities abound. In addition, the U.S. market is robust and shows no sign of slowing. Public companies and PE firms have considerable cash to use and generate returns for investors.
M&A law is not consistent across borders. Therefore, working with an investment banker that has international experience is paramount. Alkali Partners has completed two cross-border, Vancouver-based M&A deals in the first two months of 2022 and understand the complexities and nuances of international transactions. Analysts that understand geographical subtleties, including transaction tax treatments and R&D tax credits for maintaining operations in multiple countries, help founders avoid pitfalls and realize the greatest value from their transaction.
Key Takeaways
For those in the martech space, differentiation, data monetization, and future, stable revenue streams are key for M&A success. An experienced investment banker can assist sellers through this process by creating a captivating seller story, modeling revenue synergies, and navigating the complexities of the international field. Partnering with an advisor helps founders reap the most value from their deal. After all, that’s what any founder, regardless of industry, wants to achieve.
Chris Skubic is a managing director and Derek Heinonen is a senior associate at Alkali Partners.
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