"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.
Acxiom (NASDAQ: ACXM) formally acquired LiveRamp three years ago, on July 1, 2014, for $310 million, which was 22% of Acxiom’s market cap at the time.
I was co-founder and CEO of LiveRamp during the acquisition but am no longer an employee of Acxiom or LiveRamp. While I don’t have internal knowledge of LiveRamp’s finances today, Acxiom’s public filings suggest that LiveRamp is worth more than $1.5 billion – more than five times the purchase price. If it were an independent company, LiveRamp would be one of the fastest-growing SaaS companies of its size. That growth is fueled by profits, which is doubly amazing in today’s world.
Many people in the industry see the LiveRamp acquisition as one of the best tech acquisitions in the last decade. Why did this transaction perform so well when others have fared so poorly?
Culture Really Matters
Acxiom did a great job of keeping LiveRamp in a silo with an independent office, brand, HR policies and more. Because of this, almost everyone on LiveRamp’s core team is still at the company three years later.
Successful companies can have very different cultures. One culture is not inherently better than another, but for any given person, one culture trumps another. Superstars join and stay at a company because they like the culture. If that culture abruptly changes, the best people tend to leave. To keep top performers, buyers should do everything possible to keep the culture of the acquired entity intact.
One of the reasons LiveRamp has prospered is because it kept the brand. Today the LiveRamp brand is stronger than ever.
When companies acquire companies, one of the first things they do is assess the value of brand. If the brand is working, the product is working, so they should keep the brand.
When B2C companies acquire, they almost always keep the brand. Instagram, YouTube and Zappos all continue to be great brands today. The best branding companies in the world, CPG companies like Unilever, have hundreds of well-known sub-brands; Unilever's portfolio includes Axe, Dove, Hellmann's, Lipton, Pond's, Vaseline, Ben & Jerry's, Breyers and Q-tips, among others. It would be unthinkable for Unilever to rebrand Lipton as “Unilever Tea.”
B2B companies, for some reason, almost always change the name of the great brands they acquire. ExactTarget and EchoSign were amazing brands. In fact, many of these brands continue to be well regarded today even though they were killed off or integrated many years ago.
Killing a great brand immediately decreases the value of the company acquired and hurts the morale of the people acquired. It also makes it hard to differentiate products within the mother company – and it seems they all use the same “Marketing Cloud” moniker.
Acquirers often think they can run the acquired companies better. Their reasoning is “we acquired them, not the other way around.”
But a humble executive would think, “Wow, I just spent all this money acquiring this company. I wish we could have built it ourselves. I could learn a lot from it.”
Scott Howe, CEO of Acxiom, did something very few CEOs would do when acquiring a company that was 22% of his market capitalization: He left it alone. Scott checked his ego and said, “I’m going to trust the people who built this company.” He gave the team a very long rope and let them run.
Most CEOs would have meddled with this new shiny object. Sure, they would have added some value but likely also caused a great deal of pain. Scott Howe entrusted the team to do great things, and for that, his company was greatly rewarded.
Buy A Great Company
Acxiom got to know LiveRamp over the course of three years when LiveRamp was a strategic vendor. Before the acquisition, Acxiom was already paying LiveRamp more than $3 million per year and had met dozens of people in the company through that relationship.
Acxiom was clearly aware of LiveRamp’s strengths. This boils down to the simplest but hardest lesson for acquiring companies. Of course, they should have a well-thought-out plan for how 1+1 = more than 3 post-acquisition, but it is even more important to acquire a great company from the start. Too many startups are built to flip – not built to last.
While there are no absolutes in acquisitions, a few heuristics identify companies that will stand the test of time:
- The company clearly does at least one core thing better than anyone else.
- The business has a moat, meaning that it is defensible.
- The engineering team is better than yours.
- It invests more in R&D than in sales and marketing.
- It has a deep bench of leaders.
- The company is not reliant on a charismatic founder.
- It has an amazing brand.
As we continue to see more acquisitions in the marketing technology space, I hope the Acxiom acquisition of LiveRamp is seen as more as the norm than the exception.