Alliance Data Buys Epsilon a $2.3B Present: Conversant

epsilon conversantWondering about Conversant’s future? Wonder no more, as the ad network turned ad tech company will be acquired by Alliance Data for $2.3 billion in cash and stock. Conversant (formerly known as ValueClick/Dotomi) will be folded into Alliance’s marketing services division Epsilon. Alliance hopes to close the deal by the end of the year.

From the release:

    "Conversant projections for 2015 are revenue of $670 million (+8 percent) and adjusted EBITDA of $230 million, or mid-30 percent adjusted EBITDA margins. Organic revenue and adjusted EBITDA growth rates have trended in the high single-digits range in the past with similar expectations for the near term."

“It’s about filling up the toolbox to the brim with a very, very compelling set of products and services that will put us at the table of any CMO that’s out there in the global 5,000,” said Alliance CEO and president Ed Heffernan during a conference call announcing the acquisition.

So what was missing in Alliance’s – or Epsilon’s – toolbox? Per Heffernan, while Epsilon was bullish about its digital messaging platform Harmony, it was “subscale” in key areas like targeted display, video and mobile. These are all areas of concentration for Conversant.

capabilities

In the press release, Alliance alluded to a bunch of factors that made the acquisition favorable. These include: Conversant’s operations in markets with strong growth rates; its “long history of producing solid revenue growth with strong profitability” (that might be a bit overstated, if one accounts for 2013 financials); Conversant’s overlap with Epsilon’s top verticals; a tech stack that will power-up Epsilon’s offering (as well as the offerings of other Alliance companies including LoyaltyOne and Private Label); and the hope that Conversant’s data can enrich Epsilon’s existing datasets.

Conversant’s 2014 agenda, after stabilizing itself financially following a disastrous 2013 (due to declines in its display ad business), has been on consolidating its disparate technologies into a single stack.

These include a demand-side platform (DSP) from Dotomi, which had been led by Conversant CEO John Giuliani, an ad server, tag management, mobile in-app advertising, Commission Junction’s affiliate marketing and a traditional media network. It also has a suite of video products via its February acquisition of SET Media.

One of the big things Conversant has been building out is an initiative called Common ID, a cross-device matching solution that connects anonymous online profiles to offline names and addresses.

Epsilon hopes Conversant's digital capabilities and Common ID will bulk up the former's digital messaging platform Agility Harmony. Epsilon’s messaging capabilities center on email, and company CEO Bryan Kennedy expects Conversant’s tech to spread these capabilities to other channels like display.

“We have the ability to create an email message and from that campaign spawn out to other channels,” he said. “Conversant has a model rich in the display channel. You put those two together, you get much better coverage across the channels.”

This is key for Epsilon, whose data strength lies mostly in offline elements like demographic data, identifying individual people by name or address and transactional data.

Ultimately, this is a pivot for Epsilon which had, to this point, regarded itself as a provider of marketing services, working with key ad tech partners like MediaMath. Heffernan, in acknowledging this shift, said that though Epsilon didn’t always intend to change its model, it was attracted by Conversant’s tech: “We saw [Conversant] was a company that happened to be unique in the space in that it had a track record of delivering in the digital space and making significant cash flow doing so.”

In a March interview with AdExchanger, Epsilon EVP of online solutions Eric Stein explained how Epsilon helps clients “decide what technology to use and/or getting the most out of the tech they already licensed…We partner to build most of that and we think leveraging best-of-breed technology to help a client is a more viable position for us in the market than building a technology platform to compete with the Adobes and Googles.”

With its Conversant acquisition, Epsilon essentially bought its way into a technology platform and repositioned itself in the advertising and marketing ecosystem. As Heffernan said during the conference call, “[Epsilon can] offer a one-stop full solution to the client, wrapped in a blanket of high-touch service… This will be the primary digital hub, not just for Epsilon, but for Alliance throughout the world.”

 

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