Updated: Teradata marketing applications business sold for US$90m

Private equity firm picks up the enterprise vendor's campaign management, marketing resource management and marketing automation offerings

Teradata has found a private equity buyer to purchase its marketing applications business firm for US$90 million in cash.

The enterprise software vendor announced it had entered a sale agreement for its marketing offering to US-based Marlin Equity Partners in a regulatory filing on 22 April. The deal is subject to adjustments based on cash, debt and working capital and is expected to close by the end of the second quarter.

The deal includes what is considered by many to be the jewel in Teradata’s marketing software platform play: Its marketing resource management (MRM) offering. The sold-off applications business also encompasses its marketing automation and campaign management, but does not entail the vendor’s Customer Interaction Manager component, which had been expected to be retained by Teradata.

The purchase price is a far cry from the US$525 million Teradata paid to acquire Aprimo in 2010, the basis of its marketing applications business. At that time, many in the industry, including Forrester’s Suresh Vittal, suggested the vendor had paid a premium price for the business, even as interest in campaign management platforms was high.

The original Aprimo price tag was also significantly higher than that paid by IBM to acquire Unica just months earlier ($480m). Since then, Teradata has bolstered its digital marketing capabilities further by acquiring email marketing vendor, eCircle, for an undisclosed sum in 2012. This was followed recently by mobile marketing startup, Appoxee, and data management platform provider, FLXOne.

Industry commentator and Pund-IT analyst, Charles King, said the sale price was less than half of the annual revenues the company said business applications were generating when it announced plans for the sale in November.

“In short, this was a market for buyers, not sellers so I expect Teradata got a fair, though painful, market price,” he told CMO. “However disappointing the final price might be, it sounds like the company's larger strategy remains on track.”

Raab Associates founder, David Raab, was less optimistic about the price tag and questioned what it suggested about market conditions. He noted Teradata reported just under $200 million revenue for marketing applications last year.

"About $40 million of that might be for the pieces that Teradata is keeping, basically the on-premise software including Customer Interaction Manager and Real Time Interaction Manager," he said. "The $90 million price is about 0.5x revenue, compared for example with Marketo stock selling at roughly 5x revenue [$1 billion market cap on $200 million revenue].

"Teradata lost $45 million on the marketing applications business last year, which is actually less on a percentage basis than Marketo’s loss of $71 million. This certainly suggests that buyers saw little potential for growth in the business that Teradata is selling. The low price may also reflect a departure of many human assets from the Teradata business in recent years."

Forrester analyst, Rusty Warner, noted the inclusion of eCircle, Argyle Social, FLXone and Appoxee in the sold-off entity, making its overall value even higher than the original Aprimo purchase price.

"Teradata said the reasons for the sale were to focus on its core business and to reduce operating costs, so I think they wanted to close this transaction, collect the cash and move forward," he said.

The sale comes five months after Teradata CEO, Mike Koehler, surprised many by revealing plans to sell off the marketing applications business. At the time, he said the decision was prompted by an internal review of its portfolio and market penetration. Teradata now plans on focusing purely on its core data and analytics business.

Revenue generated by the business had been clearly a cause of concern. In the three months to 30 September 2015, Teradata’s marketing applications business generated US$49 million in revenue, down $4m on last year’s corresponding quarter.

Under the terms of the deal, Teradata will continue operating the business until the transaction closes.

But can Marlin succeed?

In a statement on its website, Marlin noted Teradata’s position as a leading provider of marketing operations and marketing execution software solutions and services.

“The company’s marketing operations offerings enable customers to manage marketing workflows, processes, budgets, and expenditures, and are proven to enhance the productivity and performance of marketing organisations,” the firm stated.

King noted that Marlin was coming into a market where major players, such as IBM, SAS, SAP and Oracle, offer marketing applications as part of much larger business software suites. Despite this, he expected the business could thrive under private equity ownership.

“It's likely that Marlin will be able to run the business in a sustainably profitable way,” he added. “In fact, I doubt they would have otherwise pursued and completed the deal.”

Warned said it was too early to predict how things will evolve with Marlin, but noted the acquisition includes Teradata's midrange digital marketing business with a largely European customer base, and its enterprise MRM business with a largely North American base - both very different businesses.

Raab pointed out Marlin hadn't historically been involved in marketing applications but did buy email provider, Blue Hornet, in December.

"Presumably it will combine the two businesses, improve the financial performance, and try to sell the result," he said. "Note that any valuation is all about growth; profits will remain elusive. Marlin might split off the marketing resource management and try to sell it separately."

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