ExactTarget eyed as attractive takeover target

ExactTarget Inc., the e-mail marketer that went public in March, is tempting software firms from Oracle Corp. to SAP AG to pursue a takeover of one of the fastest-growing information technology companies in America.

ExactTarget, which counts Microsoft Corp. and Groupon Inc. among its customers, is projected to more than double its revenue in the next two years, a higher rate than 93 percent of U.S.-based information technology software companies valued at more than $1 billion, according to data compiled by Bloomberg. The Indianapolis-based company’s stock is up 25 percent since its initial public offering.

With this month’s purchases of an online-shopping analysis firm and a provider of marketing management products, ExactTarget has a more complete package of Web-based marketing tools that may entice software makers to offer at least a 50-percent premium, said shareholder RCM Capital Management LLC.

While ExactTarget is unprofitable, Oracle, SAP and Microsoft lag behind in developing comparable marketing technology and may consider buying the $1.56 billion company, said Barrington Research Associates Inc. and Royal Bank of Canada.

ExactTarget is “the biggest, fastest-growing market share gainer in the space,” said Robert Breza, a Minneapolis-based analyst at RBC. “Marketing is going to get more and more important, especially as the technology evolves.”

A representative for ExactTarget declined to comment on whether the company has been approached by any potential buyers or would be open to a sale.

Founded in 2000, ExactTarget provides software that companies use to customize e-mails and social-media advertisements according to user preferences, which are tracked through clicks. The company had its trading debut in March, after scrapping its previous plan to go public in 2009 amid the financial crisis.

The e-mail marketer’s shares have since climbed more than 25 percent, to $23.74, at Thursday's closing.

While ExactTarget hasn’t reported a profit since 2008 and is forecast to post losses this year and next, the company’s revenue has increased every year since at least 2007, data compiled by Bloomberg show.

ExactTarget is “a very high-quality SaaS company,” said Jeff Houston, a Chicago-based analyst with Barrington Research, referring to providers of software as a service.

The software provider’s revenue is projected to rise 126 percent from last year’s level to $468 million in 2014, according to the average analyst estimate compiled by Bloomberg. Only human-resources software maker Cornerstone OnDemand Inc. and Splunk Inc., which offers software to help businesses analyze Web data, are projected for faster growth rates in the industry, the data show.

The ratio of the ExactTarget’s market value to its revenue in the past 12 months was 6.3 as of yesterday, compared with an average of 5.1 times for similar-sized U.S.-based application software firms that focus on information technology, according to data compiled by Bloomberg.

ExactTarget’s e-mail, mobile and social-media marketing technologies are drawing customers at a time when traditional means of reaching consumers through newspaper, television and radio advertisements have become less effective, said Tony Ursillo, a Boston-based technology analyst at Loomis Sayles & Co., which oversees about $180 billion, including ExactTarget shares.

The Internet marketing software industry will generate $17 billion in revenue in 2012, more than print and direct-mail advertising combined, according to estimates from Los Angeles- based industry researcher IBISWorld. The industry expanded at a compound annual growth rate of 11.2 percent from 2007 to 2012, the estimates show.

This month, ExactTarget said it spent more than $115 million acquiring two closely held firms in one day. The company bought iGoDigital, which provides retailers including Wal-Mart Stores Inc. and Staples Inc. with software to help customize online experiences based on consumer behavior, and Pardot LLC for its business-to-business marketing automation technology with customers such as Restaurant.com.

Previously, ExactTarget had focused on business-to-consumer technology, Brett Fodero, a New York-based analyst at Lazard Capital Markets LLC, said.

With those acquisitions, ExactTarget “has put together a nice suite of products” that may lure software companies looking to gain an instant foothold in the expanding digital marketing industry, according to Walter Price, a San Francisco-based money manager for RCM Capital Management, which oversaw about $142 billion as of June 30, including ExactTarget shares.

“Rather than assembling a group of five acquisitions, you can get what you want in one” by buying ExactTarget, Price said. “It fits nicely into somebody that’s trying to move into this marketing as a service category.”

ExactTarget’s products and rising revenue may justify a premium of 50 percent to 100 percent, Price said. That would value the company’s equity at a minimum of about $35.54 a share, or about $2.35 billion.

That’s “probably a good place to have the bidding start,” he said.

Microsoft, Oracle and Walldorf, Germany-based SAP are starting to develop digital-marketing offerings and could be interested in buying ExactTarget to accelerate that process, said Houston of Barrington Research.

“It’s the way the industry is moving,” he said. Oracle, Microsoft and SAP are “just now trying to acquire sizeable companies to get them in that space.”

Salesforce.com Inc., the largest provider of online customer management software, also may consider acquiring ExactTarget to add to its product offerings, said RBC’s Breza.

“Microsoft, SAP, Salesforce.com, Oracle are clearly companies who need to help and advance themselves towards a newer solution,” RBC’s Breza said. Those companies have “to get in the 21st century at this point.”

San Francisco-based Salesforce completed the acquisition of Buddy Media Inc., a social-media marketing software firm, in August for about $736 million, according to a regulatory filing. Oracle said it agreed to buy Vitrue Inc., another digital marketing company, in May for an undisclosed amount.

Representatives from SAP; Salesforce; Redmond, Wash.- based Microsoft; and Redwood City, Calif.-based Oracle declined to comment on whether the companies were interested in bidding for ExactTarget.

SAP is “not on any shopping sprees” for acquisitions, Co-CEO Bill McDermott said Wednesday with Linzie Janis on Bloomberg Television’s “Countdown.” SAP, the biggest maker of business-management software, already owns about 2 percent of ExactTarget shares, data compiled by Bloomberg show.

ExactTarget management may not want to sell after the purchases of iGoDigital and Pardot bolstered its potential growth as an independent company, said Lazard’s Fodero.

Also, acquirers in the industry have been more focused on private vendors and adding new technology through smaller deals, he said. ExactTarget may be too big to draw interest, he said.

Still, as digital marketing becomes essential to corporate advertising, ExactTarget may be increasingly attractive to software companies, RCM Capital Management’s Price said.

ExactTarget is a “strategically valuable company,” he said. Traditional “funnels to bring new customers are broken and so they need to find something that works, particularly for customers that are spending a lot more time on electronic media. This is a way to do that.”

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