The big news this week is that Neustar, a large, publicly-traded company was purchased by a private equity firm (Golden Gate Capital) for just under $3B. In today's LiftLetter, we talk about that company, another sleeping giant in the space (we discussed Axciom a few weeks ago, here: Acxiom and Identity).
Quick aside about private equity deals, for those who are interested, is generally that private equity firms identify profitable, underpriced companies, buy them - in large part with debt that is paid for with the company's profits, optimize that company's operations, and eventually sell them. So it was concluded that Neustar's public stock price did not fully capture the long-term potential of the company and that there was meaningful upside if the appropriate optimizations are made.
Neustar was founded as a unit of Lockheed Martin to enable cell phone number portability across the country and eventually spun out as a separate entity. As a result of its mission, it developed one of - if not the single largest databases of phone numbers and related metadata. The company expanded its footprint to help telecoms and similar companies do more insightful analysis with their telephone number and web data databases, such as location data for ISPs and wireless carriers.
The company purchased TARGUSInfo in 2011 for $650M. Targus was an early audience platform on the web and also provided a number of important telecom functionality, such as Caller ID. Targus also provided lead verification as well as audience insights for display advertising and local search. The combined entity moved into marketing areas such as geo-targeting online advertising, website localization and others (e.g. call center optimization).
The company then acquired AggregateKnowledge in 2013 for $119M. AK primarily enabled Neustar to leverage its telephone, location and related information for media buying in a more effective way - moving to include display, email, direct mail, and the like in a single solution for marketers.
In 2015, Neustar acquired Marketshare for $450M. Marketshare is a marketing analytics company that is meant to help the CMO justify various marketing expenses to the CFO. Alternatively, it helps companies understand which of their various marketing activities "drive real results." This meant, basically, that Neustar was filling out a marketing stack to compete with the likes of Adobe, Oracle, etc. Marketshare has not been as successful as originally hoped since the acquisition.
Neustar's original raison d'etre, number portability, was up for renewal in mid-2015 and lost - the contract was awarded to Ericsson. Before this happened, marketing was nearly 1/3 of Neustar's revenue. The company had been developing an audience identity solution named OneID based on the combination of all the data from its various sources. This is the basis of a growing DMP-style business that effectively offers a similar product to Axciom.
As part of the acquisition, Neustar will be split up into two divisions - a marketing services company and a telecom infrastructure company. The former is a high-growth enterprise while the latter is a high-revenue but low-growth company. These generally appeal to different investor sets, so companies with significant components of each are punished by both types of investors for not exactly meeting their criteria. It's likely that Golden Gate Capital will split off the two, invest in growing the marketing services division to capture its upside and eventually IPO (or sell) that division. The telecom division is larger with fixed and predictable margins, so Golden Gate will likely use its profits to pay down much of the debt of the acquisition until an IPO is sufficiently profitable.