Welcome to the Q1 2020 edition of the MarTech Barometer – Results International’s market update for the global marketing technology sector.
Q1 will of course be remembered as the quarter when Covid-19 sent shockwaves around the world. As we go “to print”, the stock markets have rebounded somewhat since the lows of mid-March but the economic outlook remains highly uncertain.
Outlook and Covid-19 Related Impact:
- Deal volumes slowed in Q1, reflecting the impact of Covid-19, and we expect this slowdown to continue through Q2 and potentially beyond. That said, we do expect continued M&A:
- Many of the largest companies in the sector are PE-backed, and doing bolt-on acquisitions will be a lower risk means of deploying capital than standalone investments.
- The larger publicly traded strategics (both pure play martech and broader enterprise software) generally have strong balance sheets and will continue to do strategic acquisitions to fill gaps in their solutions.
- Brands’ advertising and marketing budgets are going to be squeezed and they will have to do more with less; solutions which deliver clear ROI, measurement and efficiency will be in demand.
- Disruption in the broader industry, which is disproportionately impacting traditional models, is going to accelerate, creating opportunities for both martech and adtech vendors who are fully digital, data-driven, embracing AI, and delivering better results for marketeers.
- Value drivers and KPIs will remain largely unchanged, however we expect acquirors to focus heavily on understanding how mission-critical and sticky solutions are in the current climate; retention rates once contracts come up for renewal, clear ROI and profitability will become even more important.
Martech in Q1 2020:
- Our global martech index dropped c. 10% in Q1; this figure is somewhat flattered by the performance of Shopify, the only vendor in our index to show a share price increase in the quarter (c. 5%) and which, at now over $70B market cap, has a high weighting in the index. Unweighted, the median share price fall was close to 30%. Other vendors which performed relatively well in Q1 include Sprout Social (flat), dotdigital (down 7.3%), Twilio (down 9%) and Hubspot (down 16%).
- Valuations in the public markets declined markedly, ending the quarter at a median EV/2020 Net Revenue multiple of 4.4x, down from highs of around 7-8x at the beginning of the year and at the lower end of median multiples for the last few years. Notable outliers include Twilio (8.3x), Lightspeed (7.5x) and ZenDesk (7.2x), which are all growing well ahead of the median.
- In terms of M&A activity, unsurprisingly martech continued to dominate adtech. Strategics continued to plug gaps in their solutions, such as Salesforce’s acquisition of Vlocity for $1.3B, in the vertical market CRM space and Medallia’s acquisition of LivingLens, a video feedback platform (Results advised LivingLens on this transaction). Private equity also continued to deploy capital heavily in the sector, as illustrated by Platinum Equity’s acquisition of Centerfield, in the customer acquisition space, and Verdane’s acquisition of Confirmit, a CX and market research software vendor.
Despite current market turbulence, 2020 will remain a good year to contemplate fundraisings, exits or acquisitions in the martech and adtech space. Please do get in touch.