3. M&A: Adobe acquire Omniture
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1. Industry Review
The number of Internet users globally has grown dramatically in the past 15 years. In 1995, there were
only 16 million Internet users, equating to 0.4 percent of the world's population. By 2009, this had
risen to 1.7 billion users, corresponding to more than a quarter of the world's population. In most West
European and North American markets, Internet usage penetration now surpasses 75 percent of the
population.
With increasing share of time, the Internet is inevitably capturing an increasing share of consumer and
advertiser spend from 5 percent in 2000 to 42 percent of total by 2015, potentially twice as much as
TV and Radio combined. Internet usage is expanding to a broader range of services and becoming
central to everyday lives.
4. M&A: Adobe acquire Omniture
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2. Company overview
2.1 Adobe
Adobe Systems Incorporated is an American multinational computer software company. The company
is headquartered in San Jose, California, United States. Adobe has historically focused upon the
creation of multimedia and creativity software products, with a more-recent foray towards rich Internet
application software development. It is best known for Photoshop, an image-editing software, Adobe
Reader, the Portable Document Format (PDF) and Adobe Creative Suite.
2.1.1 Business Descriptions
Mission:
To revolutionize how the world engages with ideas and information
Business Model:
• To move from selling customers perpetual software licenses and increasing revenue by
upgrading current clients and attracting new clients
• To a monthly subscription model
• Implementation Strategy to be carried out, new technologies need relevant human supports
• Acquire a vendor targeted at a different phase of the customer value chain whose revenues are
based on the subscription model
Products:
Adobe is the world's leading digital media content creation tool provider and online marketing
solutions provider with variable products.
5. M&A: Adobe acquire Omniture
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2.2 Omniture
Omniture (NASDAQ: OMTR, 2006), the industrial leader in web analytics and online business
optimization.
The Omniture® Online Marketing Suite is the leading solution to optimize ad spend and conversion.
It includes a comprehensive portfolio of applications for visitor acquisition, conversion, online
analytics, and multichannel analytics built on an open business analytics platform.
2.2.1 Acquisitions:
Omniture made some acquisitions during past several years.
Date Acquired Amount
Nov 5, 2008 Mercado $6.5M (terms undisclosed)
Oct 25, 2007 Visual Sciences $394M in Stock
Sep 11, 2007 Offermatrica $65M in Cash & Stock
Feb 14, 2007 Touch Clarity $51.5m in Stock
2.2.2 Business Description
Business Strategy:
• Rapidly Expand Customer Base.
• Extend Technology Leadership Position.
• Broaden Online Business Optimization Platform Capabilities.
• Develop and Expand Strategic Relationships to Extend Platform and Distribution Channels.
• Remain Intensely Focused on Customers’ Success.
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Core Products:
Omniture SiteCatalyst provides marketers with actionable, real-time intelligence about online
strategies and marketing initiatives. SiteCatalyst helps marketers quickly identify the most profitable
paths through their Web site, determine where visitors are navigating away from their site, and identify
critical success metrics for online marketing campaigns.
Core features of the products:
• Pre-Built Reporting and Analytics
• Innovative Work Flow
• Video & Web 2.0 Optimization
• Advanced Segmentation
• Flexible Data Integration
SiteCatalyst is the core product of Omniture, makes more than 50% of total revenue.
Other Products:
Clients:
MEDIA 5 of Top 10 Media Companies
RETAIL 6 of Top 10 Retailers
FINANCE 4 of Top 5 Banks
TRAVEL 4 of Top 5 Travel Companies
TELECOM 23 of the Wired 40
MANUFACTURING 7 of the Top 10 Consumer Products Companies
TECHNOLOGY 6 of the Top 10 Business Week IT-100
AUTOMOTIVE 11 of Top 15 Automotive Companies
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Global Appearance:
14 International Offices:
Americas: Orem, UT; San Diego, CA; Herndon, VA; San Francisco, CA
EMEA: London, UK; Paris, France; Munich, Germany; Copenhagen, Denmark; Stockholm, Sweden
APAC: Tokyo, Japan; Beijing, China; Seoul, Korea; Singapore; Sydney, Australia
Competition:
Main competitors: Google Analytics, Coremetrics, Webtrends
Compared with Google Analytics, Omniture has only 1% of market share.
Compared with Google Analytics, the advantage is the quality of the online marketing provider:
Omniture Google Analytics
Cost $100k/year for large corprations Free
Conversion Tracking No limits 4 goals minimum
DashBoard Reports Deeper Level Normal Level
Access Management Different levels 2 levels
Site Outlay Tools Problem with new browsers Best
Import/Export Data Delivers more Delivers less
Custom Tracking Beats up each and every boundary Only 5 custom variables
Application Support Handled in no time Slow process
Segmenting Setup Complex Flexible and Easy
99%
1%
Google Analytics vs Omniture
Market Share
Google Analytics Omniture
8. M&A: Adobe acquire Omniture
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Free to use is the main course why google has this massive market share. Moreover, Google has a great
reputation to make the user more likely to use their services. (This is partially the reason why Omniture
need adobe)
Apart from Google Analytics, the competition of market share show as follow. Omniture has
superiority in the industry and it is the only one who has global business experience and business
strategy.
3. SOWT analysis
3.1 Adobe
3.1.1 Strengths
• One of the largest software companies in the world.
• Professional Products: Adobe’s products are known as the standard for creative professionals,
knowledge workers and enterprises, giving Adobe a unique opportunity to continually produce
market leading software.
• Diverse Product Base: Along with Adobe’s diverse product base, they offer comprehensive
support and solutions to assist their customers.
• Strong Balance Sheet: Adobe has a strong balance sheet with very low levels of long-term
debt enabling them to stay solvent through volatile market conditions.
3.2.2 Weaknesses:
Revenue Instability:
Prior to 2008, Adobe’s revenue experienced a constant increase since 2003. However, the below line
chart which has presented Adobe’s revenue growth in percentage surprisingly shows a few fluctuations
89%
9%
2%
Omniture vs Webtrends vs Coremetrics
Market Share
Omniture Webtrends Coremetrics
9. M&A: Adobe acquire Omniture
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that have happened over the course of the 8 years and a downward trend from 2007.
In regards to Adobe’s gross profit, it had gone through the same situation as the revenue. Though its
gross profit kept increasing in numbers during these eight years, the actual gross profit margin (GPM)
had not increased along with the gross profit numbers. In contrast, the GPM had fluctuated
significantly and had experienced a huge drop from 95% (2005) to the bottom level at 88% (2006).
0
1000000
2000000
3000000
4000000
2000 2001 2002 2003 2004 2005 2006 2007 2008
Revenue (In Thousands)
-0.1
-0.05
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
2000 2001 2002 2003 2004 2005 2006 2007 2008
Revenue Growth rate(In Percentage)
0.8400
0.8600
0.8800
0.9000
0.9200
0.9400
0.9600
2000 2001 2002 2003 2004 2005 2006 2007 2008
Gross Profit Margin(In Percentage)
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Huge spending on acquiring analytical tools:
It has announced at Omniture’s end that you plan to release numerous new product offerings and
employ new software delivery methods in connection with Omniture’s transition to new business
models. The process of developing new high technology products and enhancing existing products in
this special industry can be complex, costly and uncertain, and any failure to accurately anticipate
customers’ changing needs and emerging technological trends could significantly harm Omniture’s
market share and results of operations.
In the last a few years, you have been spending quite a large amount of money to acquire new
technology rights. On the other hand, amortization of acquired rights to use technology increased
Omniture’s cost of revenue and subsequently affect Omniture’s operating results. For example, the
amortization of acquired rights increased primarily due to the fact that you entered into certain
technology licensing arrangements totaling $100.4 million and $60.0 million during fiscal 2008 and
fiscal 2007, respectively.
3.2.3 Opportunities
• Transit from Omniture’s old perpetual software licensing business model to a monthly
subscription model, which is also known as the software as a service (“SaaS”) business
model in order to make constant recurring revenue.
• Acquire Omniture. The SaaS expertise of Omniture will bring the company a recurring
stream of revenue and Adobe will definitely be able to leverage to sell their products as SaaS.
3.2.4 Threats
Companies, such as Google, Sun, Apple, and Microsoft, may introduce competing software offerings
for free or open source vendors may introduce competitive products.
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3.2 Omniture
3.2.1 Strengths:
Good quantity and quality customers.
Omniture has a large customer database.
The company currently have over 5,100
customers in 91 countries, including
America Online, British Telecom, Disney,
eBay, Ford Motor Company, Microsoft,
Sony and Telstra. The number was doubled
after the company was listed and it is still
increasing.
High growth rate
Omniture has a high growth rate in the company
size in last 3 years
• Total transactions
• The growth of Large accounts
Innovative products
SiteCatalyst is the best online marketing suite compared with other web analytics. Research and
Development are not only focused on the SiteCatalyst but other products. Omniture now has
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dedicated engineering teams for Omniture Test&Target, Omniture Discover OnPremise, and Omniture
Merchandising product offerings. The revenue from other products is gradually increasing as a larger
part of the total revenue.
Subscription Revenue
Omniture’s business depends substantially on customers renewing their subscriptions for our online
business optimization services. Omniture sells online business optimization services pursuant to
service agreements that are generally one to three years in length, which provide a constant revenue
from customers.
By implementing this expansion strategy, Omniture had successfully derived a majority of its revenue
from subscriptions to its key service, that is, Omniture SiteCatalyst which was responsible for 89%,
78% and 64% of its total revenue during 2006, 2007 and 2008. In 2007 and 2008, only 22% and 36%
of its total revenue account for other services. Although the percentage figure declined, the absolute
value was increasing which reached nearly 190 million in 2008. This sufficient, direct experience in
subscription area demonstrates its strong market position.
Total Revenue and Growth Rate
The graph perfectly shows that Omniture had strong ability to generate revenue which had 42.8 million
in 2005 but reached 295.6 million in 2008. Even though the figure during 2009 only includes six
months’ revenues, it had already reached 174.7 million. According to the revenue growth rate chart, it
SiteCatal
yst
78%
Other
Services
22%
REVENUE BY PRODUCT IN
2007
SiteCataly
st
64%
Other
Services
36%
REVENUE BY PRODUCT IN
2008
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is evident that Omniture’s revenue had high revenue growth rate, arriving at 186.31%, 179.47% and
206.54% in 2006, 2007 and 2008 respectively. All of this evidence unveil Omniture’s high growth
momentum in the future.
The gross profit margin tells us that Omniture has 60% of its revenue left over after it pays the direct
costs associated with making its products and services in 2006 and it remained at this level, which
reached 62% in 2007 and 57% in 2008. The current ratio also shows that Omniture was stable and not
highly leveraged. In 2006, the current ratio is 2.24 which suggests that Omniture had 2.24 times more
current assets than current liabilities and can easily pay off all the current liabilities. The current ratio
in the following years also demonstrates high liquidity and efficiency ability. The table implies a
gradually lower debt to equity ratio. However, this is mainly due to its frequent share dilution actions
which would generate more liquid assets to support its operation.
22345
47923
89763
169673
102249
0
50000
100000
150000
200000
2005 2006 2007 2008 2009
Gross Profit (In Thousands)
Gross Profit
186.31%
179.47%
206.54%
160.00%
170.00%
180.00%
190.00%
200.00%
210.00%
2006 2007 2008
Revenue Growth Rate- Omniture
42804
79749
143127
295613
174729
0
50000
100000
150000
200000
250000
300000
350000
2005 2006 2007 2008 2009
Revenue from 2005 to 2009
Revenue（In Thousands）
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3.2.2 Weaknesses:
small business unit
Omniture is still expanding the international market.
Though the percentage of international business have
already increased 17% from 2005 to 2008, it is still
hard to compete with a large-size company such as
Google Analytics due to the lack of effects from
brand name and small-size company.
Net profit loss
Omniture has suffered from the net profit loss in recent years. As seen from the graph, Omniture
incurred significant losses in many years, including a net loss of 44.7 million in 2008 which primarily
as a result of huge investment expenses in network infrastructure and sales and marketing. This is not
a surprising result as Omniture had plans for international expansion, expansion of infrastructure, the
development of new services as well as a large amount of amortization of intangible assets acquired
in its acquisitions.
High friction cost
Omniture failed to integrate those acquired products and services into its online marketing suite, had
difficulty in migrating its existing customers to several new products and combining various business
culture. It had duplicative facilities and resources, lost the economics of scale. The integration of these
acquisitions, particularly the integration of the Visual Sciences acquisition and two European
acquisitions, was a time-consuming and expensive process, had resulted in the incurrence of significant
ongoing expenses, including the addition of a number of personnel to manage and oversee the
integration efforts, and the opportunity cost such as the cost resulting from the diversion of the attention
of management team from its existing business. All of this evidence show that Omniture lacks
experience operating in the geographic market and competing with international competitors.
-17441
-7725 -9429
-44766
-10199
-50000
-40000
-30000
-20000
-10000
0
2005 2006 2007 2008 2009
Net Profit & Loss (In Thousands)
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Key Ratio Analysis
The gross profit margin tells us that Omniture has 60% of its revenue left over after it pays the direct
costs associated with making its products and services in 2006 and it remained at this level, which
reached 62% in 2007 and 57% in 2008. The current ratio also shows that Omniture was stable and not
highly leveraged. In 2006, the current ratio is 2.24 which suggests that Omniture had 2.24 times more
current assets than current liabilities and can easily pay off all the current liabilities. The current ratio
in the following years also demonstrates high liquidity and efficiency ability. The table implies a
gradually lower debt to equity ratio. However, this is mainly due to its frequent share dilution actions
which would generate more liquid assets to support its operation.
3.2.3 Opportunities:
New markets
As the innovation of mobile terminals, mobile clients’
behavior are acted as a new market for Omniture to
expand. Omniture’s research and the department were
aware of this and the relevant products (mobile analytics
and video analytics) have been introduced to the public.
Growing demand
Due to the rapid development in internet industries,
individuals are a trend to using the internet as a part of life.
Therefore, the client behaviors study and online marketing
are more important for most industries. The demand for web
analytics system and online marketing suite is constantly
growing at this moment.
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3.2.4 Threats:
Competition threats:
Coremetrics has a valuable relationship with IBM since Coremetrics acquires IBM’s web analytics
package, Surf-Aid in 2006. It may be acquired by IBM in the future and get really strong monetary
support.
Google attracted many small businesses with simple and free analytics systems. Omniture creates a
trial account for potential clients to experience the online market suite demo.
Limited experiences in charging acceptable price: other competitors can provide similar products and
services with a lower price or for free. Omniture failed to set an appropriate price for its customers.
17. M&A: Adobe acquire Omniture
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4. Synergy
4.1 Optimize value chain
By combining Adobe’s content creation tools and ubiquitous clients with Omniture’s Web analytics,
measurement and optimization technologies, Adobe will be well positioned to deliver solutions that
can transform the future of engaging experiences and e-commerce across all digital content, platforms,
and devices.
The combination of the two companies will increase the value Adobe delivers to customers. For
designers, developers and online marketers, an integrated workflow—with optimization capabilities
embedded in the creation tools—will streamline the creation and delivery of relevant content and
applications. This optimization will enable advertisers and advertising agencies, publishers, and e-
tailers to realize greater ROI from their digital media investments and improve their end users’
experiences.
4.2 Financial performance enhancement
4.2.1 Smoother revenue structure
4.2.2 Future revenue growth potential
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5. Comprehensive acquisition strategy
5.1 Acquisition method
Taken the financial position of Adobe and Omniture into consideration, Cash Only is sincerely
recommended. The reasons are as follows:
Ÿ Global Financial Crisis has a serious influence on Omniture’s stock price, giving Adobe
possibility to take over Omniture with its own cash.
Ÿ Adobe has adequate cash in hand
Ÿ Adobe’s share price is in the process of recovering after dropping extremely in the GFC in
2008
$-
$200.00
$400.00
$600.00
$800.00
$1,000.00
$1,200.00
$1,400.00
$1,600.00
2006 2007 2008
Million
Adobe Cash Flow
Cash flow from Operation Cash & Equivalents at Year End
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5.2 Valuation
Discounted Cash Flow valuation model
The Discounted Cash Flow (“DCF”) valuation represents the net present value (“NPV”) of projected
cash flows to all providers of capital using the weighted average cost of capital (“WACC”) as the
discount rate to reflect the time value of money and the riskiness of the cash flows.
The DCF method needs stable and predictable cash flow in years, so it is not suitable for Omniture.
The reasons are as follows:
Ÿ Omniture went public in 2006, just three years ago.
Ÿ Omniture has negative cash flow in the past years
Ÿ Internet & Software industry always cannot fit in the qualification of DCF model
5.3 Comparable Analysis
Comparable company analysis values a company by reference to other publicly-traded companies with
similar operating and financial characteristics. It compares the public company value of operating
statistics to calculate the valuation multiple
Here is the listing of companies in the same industry with Omniture:
Symbol Company Market Gap Sector
GOOGL Alphabet Inc. 96.74B Computer Software
MSFT Microsoft Corporation 172.93B Computer Software
BIDU Baidu, Inc. 4.51B Computer Software
CHKP Check Point Software Technologies Ltd. 3.99B Computer Software
CTXS Citrix Systems, Inc. 4.28B Computer Software
PRGS Progress Software Corporation 766.97M Computer Software
MSTR MicroStrategy Incorporated 441.43M Computer Software
FALC FalconStor Software, Inc. 130.99M Computer Software
21. M&A: Adobe acquire Omniture
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Here we choose 2 huge-capitalization companies (market gap > 10 billion), 3 mid-capitalization
companies (1 billion < market gap < 10 billion), and 3 small-capitalization companies (market gap <
1 billion).
We use P/E Ratio, P/B Ratio, and EV/EBITDA indicators as valuation metrics. Internet & computer
software industry is a new area for valuation. It doesn’t fit in well in any single traditional valuation
models. So, we use three major and effective indicators to fairly evaluate Omniture.
Now the average stock price of Omniture in the past three trading days is about $17.2 per share. With
a 16% premium, we believe $20 per share is a reasonable price for Adobe to take over.
1.63x P/B ratio is excellent, lower than the average level of selected companies. Because of a low EPS,
Omniture has a P/E ratio more than 100x but doesn’t mean the price offered is expensive.
With the Price we offered, the EV/EBITDA is 30.09, which is also a reasonable level in this industry.
Company Market Firm P/E Ratio P/B Ratio2 EV/ EBITDA
Gap Value 2008 2009E 2008 2009E 2008 2009E
Large capitalization
GOOGL 96.74B 80.89B 23.09 40.16 3.43 5.85 9.95 18.98
MSFT 172.93B 154.21B 10.34 21.56 5.11 6.67 5.97 11.81
Mean 16.72 30.86 4.27 6.26 7.96 15.40
Mid capitalization
BIDU 4.51B 4.11B 19.13 45.25 9.94 18.84 23.49 40.65
CHKP 3.99B 3.07B 12.66 20.65 1.98 3.24 7.65 14.1
CTXS 4.28B 3.71B 24.81 44.45 2.23 3.64 11.54 24.42
Mean 18.87 36.78 4.72 8.57 14.23 26.39
Small capitalization
PRGS 766.97M 649.80M 17.83 37.2 1.59 2.26 6.88 10.88
MSTR 441.43M 313.55M 10.92 16.44 3.21 5.81 4.19 9.57
FALC 130.99M 89.34M 92.67 62.25 2.013 3.55 13.92 25.43
Mean 40.47 38.63 2.27 3.87 8.33 15.29
Blended Mean 25.35 35.42 3.75 6.24 10.17 19.03
OMTR 1.67B 1.79B 142 106 1.63 1.98 30.09 35.52
