Marketo was recently acquired by Adobe for $4.75 billion. Marketo was founded in 2006 by a group of ex-Epiphany executives. It went public in 2013 and was struggling in 2016 when it’s revenue growth rate declined by 50%. Marketo was executing a growth at any cost strategy and had posted a -$50 million in EBITDA. They were acquired by Vista Equity for $1.79B – a 62% premium over its prior closing price. Adobe acquired Marketo from Vista in August 2018 for $4.75B – a hefty return and Vista’s single largest exit to date.
Private equity has been involved in software tech for quite a while. Junk bonds and LBOs were the kings in the 1980s and 90s. Starting in 2000 after the Dot Com bubble burst, private equity firms began to snap up distressed software firms. The playbook was simple – find an undervalued target, acquire it with limited equity and debt, change executive management, reducing R&D, restructure headcount, cancel failing growth strategies, drive EBITDA growth, and exit. I was an executive at a few firms backed by private equity that used this approach very successfully. An old adage still held true however, “You cannot cut your way to growth.”
Vista was very active in the market, completing over 50 transactions. They executed the private equity tech playbook very well. In 2016, however, they changed strategies. They started investing heavily in companies when they were still in their growth stage.
Vista brought in a new CEO for Marketo – SAP executive Steve Lucas, who had significant experience in growing enterprise software businesses. When Vista buys a company, all employees and recruits are required to take a personality-and-aptitude test, like one first developed by IBM. The hour-long test assesses technical and social skills, and attempts to gauge analytical and leadership potential. Vista also leveraged their Vista Standard Operating Procedures aka their secret sauce. It is basically a guidebook for growing software companies. Vista also leveraged their bootcamp training programs. Boot camps train employees, not just for two weeks but for six to nine months. In the past three years, Vista has put 12,000 new hires through these boot camps. They start by giving employees the big picture: how the Vista company makes money and the way customers use its products. The focus later shifts to specific corporate roles.
The results were dramatic Marketo went from =$50M in 2016 to EBITDA positive 2017 to a $4.75 billion exit in 2018. In addition to providing sound management of their largest competitors HubSpot serves enterprises, mi-market, and small to medium business. Intead of growth at any cost, it was growth with a purpose and focus.
To learn more about Vista’s experience with Marketo check out Billionaire Robert Smith’s Vista Equity Makes $3 Billion Selling Marketo. To learn more about Robert Smith, Vista’s co-founder check out: Richer Than Oprah: How The Nation’s Wealthiest African-American Conquered Tech And Wall Street