BEHIND THE NEWS: Success of rivals’ IPOs embolden 2 local software firms

Keywords Technology
  • Comments
  • Print

It’s a tumultuous time to take a company public. But the executives leading ExactTarget Inc. and Aprimo Inc., the two Indianapolis marketing-software companies with pending initial public offerings, have an abundance of reasons to think they’ll be successful.

Here’s a big one: Each has a major competitor in its niche that already has gone public and done well.

In the case of e-mail marketing firm ExactTarget, the competitor is Massachusetts-based Constant Contact Inc., which raised $93 million in an IPO two months ago. The stock debuted at $16, then zoomed past $30 before falling back to around $20.

For Aprimo-which makes software that helps clients manage marketing expenditures, measure results of campaigns, and increase customer leads-the rival is Massachusetts-based Unica Corp., which raised $38 million when it went public in August 2005. Its shares, which debuted at $10, peaked at nearly $18 this spring before retreating. They now trade for around $9.

ExactTarget intends to raise $86 million, according to the IPO registration statement the company filed with the Securities and Exchange Commission Dec. 14. Aprimo wants to raise $50 million in its offering, according to plans submitted to the SEC in September.

The fact that two fastgrowing Indianapolis software firms are plotting IPOs at the same time is a coup for the city’s information-technology sector.

But it’s by no means a surprise. Both companies are backed by venture capitalists who everyone knew eventually would look to pocket a tidy return. And the software firms have been posting the kind of financial results that would impress even the crustiest investors.

Take ExactTarget, whose software helps clients create, target and deliver permission-based e-mails. The sevenyear-old company earned $2.1 million on revenue of $34.1 million in the first nine months of this year.

It was the 27th consecutive quarter of revenue increases.

And there may be a lot more growth in the offing. Massachusetts-based Forrester Research says the e-mail marketing market-in which ExactTarget and Constant Contact already are major players-is expected to grow from $2.3 billion this year to $3.5 billion in 2010.

“They have been really successful so far,” Forrester analyst Julie Katz said of ExactTarget. “They have an easy-to-use tool, and they’ve been innovative.”

The biggest uncertainty, she said, is whether the company will succeed with its strategy of expanding beyond small and midsize companies to also target businesses with more than $1 billion in revenue.

The big-company market is tough to crack, Katz said, because it’s more crowded with competitors. She noted that rather than following ExactTarget in pursuit of goliaths, Constant Contact is sticking to its small-company roots.

“I think they are trying to be all things to all marketers,” she said of ExactTarget. “Constant Contact is successful because they are so focused.”

Automating marketing

Analysts say Aprimo also is a pioneer in a marketing segment with huge potential.

The company notes in its IPO filing that even though worldwide marketing expenditures top $1 trillion annually and marketing professionals must manage and analyze huge amounts of data, “few organizations have effectively automated their marketing functions, and in many cases, marketing professionals continue to rely on manual processes.”

Aprimo, which was founded nine years ago, reported 2006 profit of $2.1 million on revenue of $51.4 million. Annual revenue has quadrupled since 2002.

“Given strong recent growth in Aprimo’s business and projected growth in the marketing-automation software market, this IPO is well-timed,” Kimberly Collins, an analyst with Connecticutbased Gartner Inc., said in a report.

Let’s hope both live up to their promise and, as a result, continue their hiring sprees. ExactTarget, which is headquartered downtown, has doubled its work force since the start of 2005 and now employs 268. Aprimo, on 96th Street, has boosted employment from 210 to 355 since the start of 2006.

But growing fast while staying attentive to new and current customers isn’t easy, as any company would attest to.

As Aprimo notes in its filing, “Our historic growth has strained, and our expected future growth will continue to strain, our managerial, administrative, operational, financial and other resources.”

Please enable JavaScript to view this content.

Story Continues Below

Editor's note: You can comment on IBJ stories by signing in to your IBJ account. If you have not registered, please sign up for a free account now. Please note our updated comment policy that will govern how comments are moderated.