Neustar Acquisition

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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.

Acxiom and Identity

Acxiom, the publicly traded data broker, recently announced two acquisitions - Arbor and Circulate. Neither of these companies were very large, the total outlay for both combined was $140M, yet they show Acxiom's continued momentum building a true identity-based competitor to Facebook, Google, and Verizon.

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In our side of the business, we rarely discuss data players in much depth, so it's worth taking a minute to discuss who Acxiom is. Headquartered in Arkansas, the company is nearly 50 years old. Acxiom started in the days of direct mail, phone calls, and market research. In the past several years, it has moved forcefully into the digital space by merging its huge traditional data business with online identity tools. The company maintains huge records of offline behaviors, including credit card purchases, medical conditions that it can legally access or infer, deeply detailed demographic information along with online records - often linked through credit card numbers, email addresses or other deterministic-ish data sources. Their acquisition of LiveRamp only furthered the push into unifying disparate digital data sources into a holistic understanding of the customer. (Many have concerns about some Acxiom business practices, but this is beyond the scope of this discussion. Feel free to read more here: http://www.nytimes.com/2012/06/17/technology/acxiom-the-quiet-giant-of-consumer-database-marketing.html and https://www.ftc.gov/news-events/press-releases/2014/05/ftc-recommends-congress-require-data-broker-industry-be-more).

LiveRamp is a platform that allows entities to move data between partners. For example, if a company has a CRM with its customer data, it can use LiveRamp to upload that data and sync it to its partners by understanding the user IDs of the various partners (e.g. ad networks, Facebook, etc) and pushing the data to be available in all of those systems. This even means that if you're an offline company, you might be able to use credit card purchases of your customers, sync those with LiveRamp's ability to tie credit card numbers to online identities, and create a targetable pool of users online. So whatever your data is, and whatever identity key you have for that data (e.g. telephone numbers), as long as LiveRamp also has that identity key, that data can be used wherever through the LiveRamp system. This is valuable for marketing to those customers, licensing this data out, or enhancing various other data attributes. And, of course, Acxiom's extensive and valuable data can be matched and distributed through the same mechanism.

LiveRamp recently announced the acquisitions of Arbor and Circulate. Both companies were focused on mobile with similar missions. Both offered publishers recurring revenue based on their logged-in users - without publishers adding additional advertising to their sites. Users often provide some form of ID for email updates or other login purposes. These are then synced offline with Arbor / Circulate, and matched - often focusing on device ID as a main key. In effect, Arbor and Circulate were beginning to recreate LiveRamp's CRM connectivity offering, but designed for a mobile-first world (so adding things like location that hadn't been as important for LiveRamp). They had established a combined ~250 publisher relationships. While their revenue was limited - $5M combined, estimated for 2017 - they presented a growing thread to LiveRamp's CRM matching hegemony.

As Google and Facebook create closed silos of data, LiveRamp has created a very open mechanism to move and understand data. That said, with Google and Facebook, users have some understanding that their data may be tied to marketing data. Most consumers have no idea that Acxiom / LiveRamp exists, nor that when they enter their email into a form they are creating a persistent link for their identity to a device. The opt-out mechanism is hard to understand because the device provider is hard to trace. Thus, while their open platform is generally good for marketers - it is significantly more likely to be regulated than either Facebook or Google's opt-in systems (you do have to agree to their terms of service, regardless of whether you read them).