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Insight BriefA Flurry of Private EquityM&A in Content ManagementHits the CEM WorldBy: Alan Pelz-SharpeThe CEM (customer experience management)world has experienced a number of contentmanagement system (CMS) mergers andVenture Capital and PrivateEquity: Two Kinds of Investorsacquisitions, with whispers of others on the way.Most people in the IT world are at least somewhatThe acquisitions of Sitecore, Episerver, and Ektronfamiliar with venture capital (VC) firms. These areby private equity firms are the most prominentthe investors who put money into high-risk butrecent examples. This activity will only increasepotentially high-return technology companies,over the next year or two, and the landscape forparticularly in their start-up stages. Many ofCMS vendors will change significantly as a result.their deals fall flat and the investors lose theirAlthough foreseeable and arguably long overdue,entire stake. Of course, such a high failure rate isthe shifting and consolidating vendor landscapefactored into their investment approach. But a fewwill undoubtedly bring some disruption to vendors,like Facebook and LinkedIn bring huge returnschannel partners, and technology buyers alike. Ason the money invested. It’s not a business for thethe captain of the CMS flight might suggest, it’sfainthearted; you need a mathematician’s logic andtime to fasten your seatbelts, for there’s turbulencea gambler’s love of the thrill to succeed.ahead.Private equity (PE) firms are in many regards thepolar opposite of VCs – they invest in and almostalways take majority or complete ownership of latestage firms. They target companies where thereis a relatively low risk of losing the investment.The firms targeted for acquisition have reached aDIGITAL CLARITY GROUP 2016 info@digitalclaritygroup.comA Flurry of Private Equity M&A in Content Management Hits the CEM World 1
plateau despite being established going concerns.PEs, on the other hand, are increasingly interestedIn some cases, a PE firm will buy a number ofin the web content management (WCM) andrelated firms and essentially merge them to reducedigital asset management (DAM) elements ofcosts and create a more compelling and profitablethe CEM world. These include technologies thatsingle entity. After the acquisition, a typical PEhave been around a long while (in IT terms) andapproach is to install new leadership, reduceare up and running for most potential buyers.expenses, and achieve new efficiencies (by, forThe opportunity for big market growth with theseexample, merging operations or cutting producttechnologies is limited, and revenue from existinglines) – all with the aim of creating a leaner, morecustomers’ maintenance fees often outweighsprofitable, and (therefore) more valuable company.revenue from new customers. It may be a hard pillto swallow but the fact is that much of the CMSmarket is getting a bit long in the tooth. It stillCMS is attractive to investorsat both ends of the markethas value, but it’s not high-growth or sexy today,The vendors targeting the CEM market are seeingmaturity that has driven recent deals (see theeven though WCM remains at the heart of, and isinterest from both VCs and PEs. The VCs areessential to, the promise of CEM. It’s this marketfollowing table) and will continue to drive more ininterested in the next big thing, like technologythe near- to mid-term.that micro-targets customers and providesadvanced analytics (preferably machine learning/artificial intelligence). About three-quarters ofCrownPeak and ActiveStandards have beenmerged together by K1, as have Episerver andEktron by Accel-KKR. It’s worth noting thatthese small, innovative start-ups will fail, someAccel-KKR also owns DAM vendor North Plains,others will be bought by larger firms such asAdobe, Oracle, or Salesforce, for example, and oneor two may even make it on their own.and more synergies are possible down the road.Sitecore’s new owner, EQT, is bullish about moreTable 1Recent Private Equity Acquisitions of CEM VendorsVendorFoundedHQPE FirmDate of DealActiveStandards(Formerly Magus Research)1998London, UKK1November 2015CrownPeak2001Los Angeles, CAK1November 2015Ektron1998Nashua, NHAccel-KKRDecember 2014Episerver(Epi)1994Stockholm, SwedenAccel-KKRDecember 2014Sitecore2001Copenhagen, DenmarkEQTApril 2016DIGITAL CLARITY GROUP 2016 info@digitalclaritygroup.comA Flurry of Private Equity M&A in Content Management Hits the CEM World 2
acquisitions and some will surely be made to buildtechnology, not piece parts. Fewer buyers areout the Sitecore offerings (EQT already ownslooking for a stand-alone WCM system; theyitslearning, a learning management system).want WCM to be a feature function in a broadermarketing suite. Buyers don’t want to laboriouslybolt together analytics, audience management, andTechnology buyers drive themarketemail campaign management tools – they want toThough the mature end of technologies targetingto simply outsource all of this complex stuff to athe CEM world is ripe for PE firms to move in, thespecialist digital agency. The digital agency in turnCMS market is not only about the whims of andoesn’t want, nor does it have the skills, to integrateinvestment community. It is driven by changesthe piece parts to create a whole solution. Thein how people buy technology to use in theirdigital agencies are starting to – and increasinglybusinesses. From a buyer perspective, there haswill – look to managed service providers to do allbeen a radical change over the past five yearsthat messy IT stuff for them.in approaching the buying process for CMStechnology that is, in turn, driving the need formature companies to find an exit.Buyers want practical solutions to real anddifficult business problems they face. They aredemanding measurable and realistic businessresults.buy a single system that does it all. Some buyersare going even further and taking the approachOne result is that having specialist CEM vendorsup for sale as buyer trends shift makes for a perfectM&A market. There is an opportunity here forconsolidators to build those one-stop shops – takethe complexity and risk away from buyers, sellservices at a steady and reasonable price, andtake out some of the remaining competition inTechnology vendors have (unfortunately)the process. That is what we are seeing in theoverpromised and under-delivered for toomarket today – smaller vendors coming together tolong. As a result, buyers have unrealisticcounter threats from the likes of Adobe, Salesforce,expectations regarding the true cost andand Oracle, all of whom already sell integratedcomplexity of technology.CEM-related technologies and all of whom areHow do these realities play into increased M&A?seeing growth and positive buyer demand.It’s simple – buyers (particularly marketers) haveThough the PE acquisitions of CMS companieslittle interest in the underlying technology andinvolve smaller vendors, the fact remains thatare increasingly looking for one-stop shops toconsolidation is ongoing across the spectrum.meet their needs. They are ever warier of multipleOracle and Salesforce, for example, have madespecialized tech products that require multiplemany acquisitions in the broader CEM/digital-specialized skills and consultants to get up andmarketing space over the past few years. It’s highlyrunning quickly and cost-effectively.likely that Microsoft will look to close the wideningBuyers are looking for integrated suites ofDIGITAL CLARITY GROUP 2016 info@digitalclaritygroup.comgap between its own limited CEM capabilitiesand the broader market. That may well meanA Flurry of Private Equity M&A in Content Management Hits the CEM World 3
more acquisitions for Microsoft. We expect thoseall we know for sure is that the vendor’s focusacquisitions to be centered around ecommercewill not be the same. But either way, moreand digital asset management initially. There is aintegrated one-stop shop options to meet yourlot of creative and innovative activity going on atCEM needs will become more common, andthe start-up VC level, but most buyers today justmore integrated firms will emerge as the PEwant a digital approach to marketing and salesfirms pull together the piece parts for a broaderthat works. They are not looking for high-risk techsolution.investments; they are looking for an integratedapproach to CMS and digital marketing. ThePE firms see an opportunity here and, all in all,it’s likely a good thing. There will be more M&Aactivity to come in the CMS and broader digitalmarketing world, possibly a lot more, and that ishow it should be given the maturity level some ofthese CEM-oriented markets have reached. As inevery IT sector, there is a continuum of older firmsmaturing and newer firms emerging to disrupt.The CMS marketplace (and the much larger CEMworld) is no exception. As the first generation ofCMS technologies mature, change and disruptionare quite rightly on the horizon for all.For service providers – it’s time to revisityour strategy. If you are a reseller orintegrator of a CMS technology undergoingan ownership change, then you need toimmediately prepare for change. There willlikely be a change of leadership and strategyat the acquired vendor – by default, the buyerthought they could run the company better(harsh but true). You should find out if thenew owner already owns other technologyvendors and ask some questions: Do thosevendors already have established channels?Is there overlap in the product lines? What’sthe potential for clashes? The one thing youcan’t afford to do is to watch idly while changeIt’s time to revisit yourrelationship with the PE-backedvendorsWhether you are a technology buyer, reseller, oroccurs. You need to act quickly to figure outif the change is positive or negative for m/no-jokesitecore-acquired/integrator, these acquisitions dictate that youreconsider your relationships with the new ownersof these CMS vendors.For buyers – it’s time for due diligence.If you are a technology buyer, you need to atDefinitionsCEM – Customer experience managementleast do a little due diligence if the vendorCMS – Content management systemyou are using or plan to use is undergoing aDAM – Digital asset managementchange of ownership. Your relationship withthe vendor may be better or could be worse;DIGITAL CLARITY GROUP 2016 info@digitalclaritygroup.comWCM – Web content managementA Flurry of Private Equity M&A in Content Management Hits the CEM World 4
About Digital Clarity GroupDigital Clarity Group is a research-based advisory firm focused on thecontent, technologies, and practices that drive world-class customerexperience. Global organizations depend on our insight, reports, andconsulting services to help them turn digital disruption into digitaladvantage. As analysts, we cover the customer experience management(CEM) footprint – those organizational capabilities and competencies thatContact UsEmail:info@digitalclaritygroup.comTwitter: @just claritywww.digitalclaritygroup.comimpact the experience delivered to customers and prospects. In our view,the CEM footprint overlays content management, marketing automation,e-commerce, social media management, collaboration, customerrelationship management, localization, and search. As consultants, webelieve that education and advice leading to successful CEM is onlypossible by actively engaging with all participants in the CEM solutionsecosystem. In keeping with this philosophy, we work with enterpriseadopters of CEM solutions, technology vendors that develop and marketCEM systems and tools, and service providers who implement solutions,including systems integrators and digital agencies.DIGITAL CLARITY GROUP 2016 info@digitalclaritygroup.comA Flurry of Private Equity M&A in Content Management Hits the CEM World 5
M&A in Content Management Hits the CEM World By: Alan Pelz-Sharpe The CEM (customer experience management) world has experienced a number of content management system (CMS) mergers and acquisitions, with whispers of others on the way. The acquisitions of Sitecore, Episerver, and Ektron by private equity firms are the most prominent recent examples.
