“Data-Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.
Today’s column is written by Auren Hoffman, CEO at SafeGraph.
The LiveRamp acquisition by Acxiom, which closed four years ago on July 1, 2014, has been one of the most successful acquisitions in the last 10 years. We dived into why it was so successful last year.
Acxiom recently announced that it hired a banker to sell its Marketing Solutions business. The Acxiom Marketing Solutions business is the legacy Acxiom business that existed prior to the LiveRamp acquisition. If the Marketing Solutions sale goes through as intended, Acxiom would consist only of the LiveRamp business unit.
Acxiom would likely rename the public company “LiveRamp” going forward and no longer trade under “ACXM” but something like “LRMP” instead.
Let’s recognize how rare this is. Rarely do large public companies buy a smaller company, keep that smaller company intact and then sell off the other businesses to focus solely on the smaller company.
Assuming that sale goes through, there are several strategic options open to the LiveRamp public company going forward.
Option 1: Sell the company
LiveRamp, as an independent company, would be an extremely attractive acquisition. This is the most likely option because so many companies would find LiveRamp strategically important.
Oracle, Adobe, IBM, Microsoft, Salesforce, SAP, Rakuten, Fiserv, Verisk and Vista Equity are the most likely buyers. Other buyers might be Derriston Capital, the new entity controlled by Martin Sorrell, and some of the better capitalized private equity firms.
There has been a lot written about the effect of the General Data Protection Regulation (GDPR) on LiveRamp, and most of it is wrong. LiveRamp is a middleware company, and middleware companies benefit from complexity and are hurt by simplicity. The more complex the ecosystem is, the better it is for middleware companies. If ecosystems get simplified, middleware companies usually get really hurt.
GDPR adds a massive amount of complexity and compliance to marketing. Complying with GDPR can be harder than complying with the Sarbanes-Oxley Act in the US. Marketing organizations will be a lot less likely to entrust compliance to startups, so more entrenched companies such as LiveRamp, which has more than 70% market share in its niche, will be beneficiaries.
Acxiom could finalize the sale of its legacy assets at just the same time that it becomes apparent that companies like LiveRamp will benefit from GDPR. That could significantly increase the price of LiveRamp stock and make options 2 and 3 below more likely.
Option 2: Continue running LiveRamp as an independent company
LiveRamp is a great asset, and it is likely much more valuable as a long-term independent entity. The industry needs an independent entity to help connect data across applications.
For LiveRamp to survive as an independent company, it will need to generate greater investor appreciation. The LiveRamp business is, in most ways, an even better business than Mulesoft, which was recently acquired by Salesforce for $6.5 billion. Like Mulesoft, LiveRamp is a middleware business that is growing quickly. Unlike Mulesoft, LiveRamp is break-even and has virtually no services revenue.
The LiveRamp management team will need to help public market investors better understand it. LiveRamp is a SaaS business and should be explained as such. Core SaaS metrics, such as churn, bookings, customer lifetime value and customer acquisition costs, will need to be front and center to appeal to a new class of investor.
Luckily LiveRamp will be blessed with Warren Jenson as its CFO. As former CFO of Amazon, Electronic Arts, Delta Airlines and NBC, Jenson has the experience to be trusted by the Street.
Once Acxiom divests its legacy business, the remaining LiveRamp business should immediately become part of the BVP Cloud Index.
One tricky topic will be what to do with the money from the sale of the Acxiom Marketing Solutions unit, which could be in the high hundreds of millions of dollars even after taxes. Shareholders might demand the money come back via dividend, which may not be the best use of capital.
Option 3: Using LiveRamp as a vehicle to acquire other great assets
LiveRamp is a public good entity that services the marketing industry. LiveRamp could quickly acquire other services that fit within this framework.
Many other companies that have similar properties could be attractive acquisition targets. LiveRamp has made three successful acquisitions in the last 18 months – Arbor, Circulate and Pacific Data Partners – so it has already developed the muscle to be able to integrate companies.
And, of course, LiveRamp itself was acquired just four years ago, and most of the core management team, including co-CEOs Anneka Gupta and James Arra, went through the acquisition so they can relate to executives going through a transition.
LiveRamp is operating in interesting times. One thing is for sure: LiveRamp continues to be a great business and has many exciting possibilities for the future.