Three week ago, employees at ad tech firm LiveRamp officially learned that they would be parting ways with more than 2,000 colleagues they worked alongside under the umbrella of parent company Acxiom.
Acxiom had announced the sale of its marketing solutions business to Interpublic Group for $2.3 billion, and LiveRamp was not part of the deal.
That’s left a cloud of uncertainty hanging over LiveRamp, which makes technology to help brands reach consumers with targetted online ads.
Inside LiveRamp’s San Francisco offices, a source tells Business Insider, employees are anxious but optimistic as they await direction from management on what the next months and years hold. Overall, there is a sense that whatever change happens, it will be for the best at the company, which has maintained its startup ethos despite being owned by the Little Rock, Arkansas Acxiom corporation since 2014.
Outside the company, speculation is rife about the fate of the LiveRamp business, which could be worth billions if a larger tech company decides to buy it from Acxiom.
While Acxiom maintains a market cap around $3 billion on the public markets, bankers and insiders alike believe that LiveRamp could be valued even higher once it’s looked at as a standalone company. One insider floated $4 billion as a reasonable purchase price for LiveRamp, and sources told AdAge that they see the business going for $2.5 billion to $3 billion.
But the sale of LiveRamp is no sure thing. Management could try to run LiveRamp as an independent public company and capitalize on its growing valuation to make big impact investments, including some acquisitions and strategic partnerships of its own.
Here’s what industry insiders think could happen to the company.
Salesforce, Oracle and Adobe could all take a look
LiveRamp is a data onboarding platform, or middleware company, which moves data from across multiple websites and sources. It’s used by marketers to connect vasts amounts of customer data to individual customer profiles.
It’s a tool for marketers to understand their customers better, but LiveRamp itself doesn’t actually own any of the data. Instead, it runs the pipes that move marketing data around the internet.
The company hasn’t stated publicly whether it’s selling itself. But sources told Business Insider’s Mike Shields in May that it’s shopping LiveRamp around.
Though LiveRamp is marketing tech, insiders believe that its new home will likely be an enterprise tech company, if not a private equity firm.
Insiders said it could attract the offers from companies like Oracle, Salesforce, Adobe or SAP, which have competing marketing platforms, or one looking to grow in that space like IBM.
“Most companies don’t have any idea how good the LiveRamp business is because Acxiom doesn’t really describe it in anyway that is comprehensible,” said one source, who believed that Acxiom chose to sell its marketing solutions business separate from the whole as a way to maximize LiveRamp’s value in a future sale.
Adding to LiveRamp’s fire is that fact that it’s a busy year for M&A both inside and outside of marketing tech.
Salesforce, for instance, acquired another middleware company MuleSoft for $6.5 billion in March — a 36% premium on the company’s stock price at the time. And AT&T reportedly paid $1.6 billion for the ad tech company AppNexus in June.
“I wouldn’t be surprised to see an M&A food fight erupting in this space,” said Paul Inouye, a partner at Union Square Advisors. “I think the back half of this year in the space is going to be active.”
LiveRamp could thrive on its own
Acxiom, which has a market cap around $3 billion, got just 23% of its revenues from LiveRamp in 2018. But some think that LiveRamp’s own market value could grow once investors start seeing it as a Software-as-a-Service company along the lines of Salesforce or Workday.
“I’ve seen this before in other businesses where you just get two very different types of businesses,” added Inouye, who said that Acxiom reminds him of previous iterations of Hewlett-Packard, as well as eBay and PayPal when they were under the same roof.
“I think what happens if you have that as your financial profile, your stock holder constituency is bifurcated. It makes it hard to operate because you have two different investor bases.”
This is because SaaS companies typically trade based on a high revenue multiple, where as non-SaaS companies often trade based on EBITDA — earnings before interest, taxes, depreciation, and amortization.
The EBITDA model favors companies with low growth but high margins. IPG bought Acxiom’s marketing assets for $2.3 billion, which William Blair analyst Adam Klauber pointed out suggests an EBITDA multiple of around 13x.
On the other hand, the median public SaaS company was valued 9.2 times its 2018 revenue, according to the Bessember Venture Partners Cloud Index. As Menlo Venture principal Steve Sloane noted in January, this tends to value smaller companies higher based off of their growth potential.
LiveRamp’s business brought in $211 million in revenue in fiscal 2018, which was up 43% from the year before. So if it fell in line with the median valuation, LiveRamp would be worth $1.94 billion — more than half of the Acxiom’s overall market cap. But since LiveRamp now has $2.3 billion in cash from the sale of Acxiom’s assets, the company, Klauber said, should trade in the $40 to $45 per share range — which gives LiveRamp a maximum valuation of $3.7 billion.
Once LiveRamp is officially on its own, it could see its stock move quickly. Across the board, public SaaS companies have performed better than the rest of the market. The BVP Cloud Index is up 41.2% since the start of 2018, where as the tech-heavy Nasdaq is up just 11.4% and the more generalist S&P 500 is up just 3.8%.
“Assuming this deal is completed, Live Ramp should be a stand-alone entity. Its characteristics should make a very attractive stock,” Klauber wrote on July 2. “The unique nature of the asset suggests that this will be a compelling stock over the longer term.”
Are you an insider with information on what’s coming next for LiveRamp? We want to hear more. Contact Becky Peterson at bpeterson@businessinsider.com.
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