ANALYSIS: What’s driving this spike in down-market M&A activity?

Wild Apricot, Weblink, GrowthZone, BuilderFusion, and MemberClicks have all been part of an acquisition within the past 60 days. The number of organizations affected by these deals is around 40,000. If we assume that the average small organization affected by these deals has 500 members, we can project that about 20M memberships are wrapped up in this wave of acquisitions.

What’s driving this rash of acquisitions in the down-market AMS space? Three things:

  1. The Domino Effect. Since the blockbuster Community Brands consolidation in March 2017, more and more investors have been looking at the association space. Last week I attended a 300 attendee conference for a small niche of the association market and met a private equity fund manager who was there scouting out companies potential investment or acquisition. This isn’t a rare occurrence. Rarely does an association industry conference go by that there isn’t an investor or two scoping out the trade show floor for a potential deal.
  2. FOMO. Fear of Missing Out. With the quickening pace of M&A in our technology market, many companies don’t want to be on the outside looking in. Some technology company founders and owners see the alliances being drawn, and they fear if they don’t get into one of their own, they’ll miss out on opportunities.
  3. Enterprise AMS platforms are spoken for. All of the enterprise grade AMS companies are either spoken for, or are fiercely independent (though we’ve seen some fiercely independent company founders get acquired or bought out this year). There also just aren’t as many enterprise AMS platforms as there are smaller AMS players.

Implications of all this activity?

  • Inevitably, some percentage of customers won’t like the acquisition, and will switch to another vendor. One industry expert estimated that in one of the larger acquisitions in the past five years, between 20-40% of the clients of the acquired company migrated to another AMS.
  • New AMS platforms are cropping up to fill the void left by the acquired companies.

MemberClicks has acquired Weblink

Two AMS platforms prevalent in the small staff association space are coming together. MemberClicks announced on November 2, 2017 that they have acquired Weblink. Read the press release. Back in May, MemberClicks acquired event registration software company, ePly, and in February 2017, they accepted a growth equity investment (amount undisclosed).

ANALYSIS: Higher Logic acquires Informz & Real Magnet

In October 2017, Higher Logic announced that it had acquired two email distribution platforms used widely in the association sector: Real Magnet and Informz. Higher Logic acquired online community platform Socious and online collaboration platform Kavi Workspace earlier in 2017. In September 2016 Higher Logic accepted a $55M round of growth funding from JMI Equity.

One of the most fascinating parts of this story is the level of orchestration that was required to pull off these deals. Higher Logic and its private equity firm were able to negotiate two deals, with two competing companies, which closed within 30 minutes on the same day, and with the two acquired companies each unaware that the other was about to be acquired. If either Informz or Real Magnet learned of the other deal, it may have blown — or severely complicated — the deals. This was an expertly coordinated pair of transactions.

These are also smart acquisitions. Email notifications are the lifeblood of the Higher Logic community platform. Higher Logic already has some of the most advanced email notifications in the market, but they are not an email distribution platform. By aligning their community expertise with bona fide email expertise, Higher Logic has created a point of leverage to dramatically improve their platform’s email functionality.

Informz and Real Magnet have more than 1,600 customers combined. This gives Higher Logic a foot in the door to sell their product to the acquired companies’ customers, and vice versa. This also brings Higher Logic’s total clientele to over 2,500.

Higher Logic is already tracking 5 billion user interactions per year on its platform. Emails delivered by Real Magnet and Informz account for another 7 billion interactions collectively. With more points of interaction to mine, Higher Logic can build an even more reliable member engagement profile for its clients.

Furthermore, Real Magnet in particular offers robust marketing automation features that fit nicely with Higher Logic’s existing automation rules. Imagine being able to kick off a marketing automation campaign based on a member’s community activity, or vice versa. The ability to induce engagement in a community based on an interaction with an email is pretty compelling. It creates a virtuous cycle of member engagement which is proven to increase retention.

The potential downsides of this deal are:

  1. That Higher Logic is acquiring two very similar companies. This creates uncertainty among the customers and staff of the acquired companies, and we’ve seen first hand the communication challenges this has presented to another brand in the space that is consolidating multiple similar companies. Is one product going to be deprecated, or will they be merged? Will there be reductions in force? Will the company culture change because of this? These aren’t unconquerable questions, but they do create a minor communications crisis that Higher Logic, Informz, and Real Magnet need to manage.
  2. That Higher Logic may have alienated other email distribution platforms with these deals. They have partnerships with email platforms other than Informz and Real Magnet. How are these deals perceived by the email platforms that are now on the outside looking in? Higher Logic has a reputation for playing nicely with everyone. Is that reputation now tarnished in the eyes of the other email platforms? How should other Higher Logic partners interpret this event? Does it foreshadow that Higher Logic would consider acquiring an LMS or a mobile app platform, for example? These also are not insurmountable issues.

All in all, I think this is good deal for Higher Logic, Informz, and Real Magnet customers. I’m very excited to see how these technologies come together to drive more member engagement.

GrowthZone acquires BuilderFusion

GrowthZone, a leading provider of technology solutions for associations and chambers of commerce with nearly 3,000 customers has acquired BuilderFusion, an AMS tailor-made for home builders associations. Check out the press release.

ANALYSIS: Personify/Wild Apricot deal is brilliant

On September 26, 2017, Personify, widely known for their enterprise level AMS platform and high-profile customers, acquired Wild Apricot, an entry level membership management system. This acquisition is in addition to the November 2015, acquisition of Small World Labs, a leading online community vendor. Personify is backed by Rubicon Technology Partners, a private equity firm with offices in Menlo Park, CA and Stamford, CT.

Because they serve mostly micro-associations (very small staff or  volunteer run) Wild Apricot is relatively unknown among career association executives. Let’s fix that.

Toronto-based Wild Apricot is a pure SaaS (Software as a Service) technology company with over 22,000 customers. Personify is now boasting a customer base exceeding 30,000 customers. 21.5% of Wild Apricot’s business is based outside the US, giving Personify a foothold overseas.

This number has raised some eyebrows. An industry insider sent in this tip: “I would seriously question the number of customers that Wild Apricot and Personify are throwing around.” So I did some digging.

According to Michael Wilson, Chief Strategy Officer at Personify, the number is indeed correct and more than 50% are ongoing paying customers. Wild Apricot’s freemium model allows users to register for a free 30 day trial, begin managing their membership, and then start paying if they like the service. There’s also a completely free version for organizations with less than 50 members which is where the balance of the customer count comes from.  According to Wilson, “The model of allowing a free level expands the user base of clients that can advise us on how to continually improve the product in the best way.”  The CSO continued, “This is also good for the industry as it provides free software to small organizations that cannot yet afford to pay. Also, as they grow, we do too.”

Pricing ranges from $40/mo to $270/mo, so if we assume that the average paying customer is paying the $70/mo rate (the second to lowest rate) that would give Wild Apricot about $10M in annual revenue.

Their customer acquisition model is almost entirely word of mouth and inbound marketing — SEM, content marketing, social media marketing, and leveraging review sites. According to Personify, Wild Apricot has been the highest rated membership management system on technology review site Capterra for the past five years. Through these efforts, I’m told by Personify that Wild Apricot has grown 20% per year with a sales team of zero. Think about that. No sales team and about $10M in revenue.

Having no sales staff has a couple of important implications:

  • Wild Apricot can devote a greater share of its resources to R&D. Wild Apricot boasts an R&D staff of 100.
  • There’s no need to send sales staff to attend or exhibit at conferences and events — hence the lack of awareness of Wild Apricot among career association executives and association sector technology experts.

Because of the shroud of mystery over Wild Apricot, many industry insiders I spoke to initially scratched their heads on this acquisition. Two products, seemingly incompatible, and addressing widely different markets coming together? How does this make sense? One consultant remarked: “This acquisition only makes sense for Rubicon. It’s designed to boost top and bottom line and make EBITDA look better for the next buyer.”

But this deal is actually brilliant. Here’s why: Unlike other recent acquisitions which brought together similar products addressing similar verticals, Wild Apricot and Personify have almost — *almost*; hold on to that word — no overlap.

Some recent acquisitions in the association technology market are forcing the parent companies to reckon with issues such as:

  1. How to continue managing multiple, very similar platforms that serve the same customers.
  2. How to merge the similar platforms from a technology perspective
  3. How to merge the similar companies from a personnel perspective (e.g., layoffs or new roles)
  4. How to manage sales teams for two competing platforms under the same parent company who are competing for the same business
  5. How to choose which product to deprecate
  6. How to communicate about all of the above challenges to customers, prospects, and the broader market

Personify and Wild Apricot have no such dilemmas.

Remember that *almost*? Here’s the almost: During due diligence, the Personify team discovered that 25% of their customers have local chapters who are Wild Apricot customers. This creates an interesting opportunity: think about a huge international organization that needs a 500HP AMS to give them throttle for their complex scenarios, but their chapters just need a bike to get them around. What if those technologies played nicely together? Register for the international conference through your chapter’s website, renew your certification through your chapter’s website, international can crunch engagement data to serve chapters high-potential new volunteers, etc.

“This is an area we are really excited about,” said Wilson.  “This acquisition actually helps large organizations solve the dilemma of how to bridge the data and user gap between the large national headquarters and the local, often independent affiliates.”

This deal now brings Personify’s total client base to a reported more than 30,000 organizations when including the national organizations and local entities using Personify360, Small World Community, and Wild Apricot.

Perhaps the only downside to this acquisition is the perception in the broader market rumor mill that Personify has been distracted from its core business by pursuing a deal that — despite its brilliance — seems to be a mis-match.

For those that have worked in the association market for more than a few years, you may remember that after private equity investment dollars first came into Personify in 2013, there was a period of staff churn at the company. While that initial churn generated a few critics, it seems Personify has turned the corner and their arrow is pointing up.

I was given a confidential client retention number that I can’t share, but as a former membership director, I would have been very satisfied with the number. Personify was also recently named as one of the Top 20 Most Promising Cloud Solution Providers by CIOReview Magazine in 2017. Perhaps Personify is doing better than the critics think.

My bottom line: Some of the most knowledgeable and respected industry insiders were initially conflicted about this acquisition, but have come around. Pure SaaS play companies are among the most valued in the broader technology market. In my opinion, Personify has bagged a unicorn, and I believe it has taken their competitors by surprise. I personally think that this is a good deal for everyone involved, and good for the association technology market.

BluePay acquired by First Data

Publicly traded payment technology company First Data has entered into an agreement to acquire a leading payment gateway for associations, BluePay. AMS platforms such as Membersuite, iMIS, and YourMembership all have BluePay as an option for online payment processing. First Data touts that the acquisition adds “Member Based Organization solutions to First Data’s product suite” in its press release.

Share your perspective on the Personify-Wild Apricot deal

I’m preparing an analysis of this week’s Wild Apricot acquisition by Rubicon-backed AMS, Personify. If you’re a client or prospect of either Wild Apricot or Personify, I’d love to hear from you.

I’m also eager to hear from consultants and other vendors who work in or around the AMS market with their comments.

Remember: I accept (but not necessarily publish) anonymous tips, and you can rest assured that I will only divulge your name if you ask me to.

Where are they now? Interview with Amith Nagarajan, founder of Aptify

I’m starting a new series of posts here on theNIRD called Where are they now? in which I hunt down and interrogate founders/owners of association technology companies who have sold their businesses and moved on to other pursuits.

In this first installment of the series, I interview Amith Nagarajan, the founder of Aptify, which was acquired by Community Brands in March.

Q: Given your longtime involvement with the association community, and Aptify’s Evergreen status, some industry insiders were surprised by your decision to sell Aptify to Community Brands. What’s the story?

If you had asked me 12 months ago if I were planning to sell Aptify I would have told you that it was unlikely. I didn’t feel that there was a good strategic reason to do so. I enjoyed Aptify from when I founded it in 1993 through the last day I was there. Aptify wasn’t just about making money, it was about fulfilling a deeply held belief that we could significantly impact the association profession and ultimately improve society and the world through our work. I am very proud of what we accomplished as a team and most proud of the way we served clients and upheld our values as a team. Growing a company globally is a challenge and a privilege, particularly when the work you are doing can affect so many people in different fields.

Ultimately, I decided that the opportunity to sell made sense on 3 levels. First, I felt that our customers would be best served long term if the right acquisition were to take place. Second, I felt that the growth opportunities our team members would enjoy would also be maximized in the right deal. And finally, as the founder and entrepreneur behind Aptify, of course, I had to ensure it was a good deal financially. As I mentioned, I didn’t think that this type of deal would come together a year ago but things happened very quickly over the last quarter of 2016 and first quarter of 2017 and my team and I really bought into the vision of Community Brands and how it aims to serve the market in a whole new way. Not just due to its unprecedented scale, but with an approach across segments and product lines that will allow for new forms of functionality, integration and collaboration that just wouldn’t be possible before the Community Brands strategy came to life. I felt that our customers would be well served in an aligned culture and our team would have new and even better growth opportunities.

Q: What’s your biggest concern for Aptify clients as a result of the deal?

Any type of change is difficult and this is a pretty big one. As a result it is critical that clients of Aptify as well as the rest of the companies that have become part of Community Brands continue to receive clear and frequent communication from the leadership team. As long as the communication continues to be transparent and frequent I think there is very little to be concerned with. The investment level and long term commitment that Community Brands has committed to the Aptify product, clients and team will be very exciting for everyone. I wouldn’t have done the deal if I felt there was any major risk to any of the stakeholders in the company.

Q: On a personal level, what was it like sell a business that you’ve spent most of your working years building?

One word – strange. I am very happy with the decision and am super excited about what I’m doing now. But when you start a business in your college apartment as a teenager, see it grow into a global company and have spent essentially all of your adult life doing it, it is strange to wake up one day and not be part of it. I miss working with the awesome team members and our clients. I was very fortunate to have built a successful business and could have sold or stepped away well over a decade ago. But I stayed involved personally for years because I loved what we did and how we helped our clients. I also greatly enjoyed helping team members grow and building an amazing culture. So I do miss that. But, I think that change drives new forms of growth and having the same leadership (me) for so many years can also be limiting for both the team and the leader, so I think it is a good thing. But, as I said, it sure was strange the first few months.

Q: Some people may not know that Aptify wasn’t your only business, and that you’re a serial entrepreneur. I guess you’re not just going to drink Mai Tai’s on the beach for the rest of your life. Tell us about your portfolio of companies and investments.

Hahaha… I have spent a lot of time enjoying myself outside of work over the years and continue to do so, so I’m not too worried about getting beach time. Anyone who knows me would realize I would go nuts sitting around for too long. And business is huge fun if you have a great culture, team and clients! One of the reasons I started branching out from Aptify about a decade ago and helped other entrepreneurs build companies in other markets. I’m an investor or co-founder in about 15 other businesses, some very successful and some in early stages. Some startups I have backed have failed which is part of the journey. Entrepreneurship is about taking calculated risks and then going for it, and having fun along the way.

After the first dozen years of building Aptify I figured I would give back to the entrepreneurial cycle and invest in startups at the earliest possible stage. I helped quite a few early startups with initial seed capital and in some cases some advisory or board help to get off the ground and scale. I’m very proud of the entrepreneurs I’ve helped. Some of the companies I’ve been an early investor in include www.concertgenetics.com (SaaS for genetic testing),  www.zlien.com (Construction management software), www.kickboardforschools.com (Education software), and outside of software a few other things including www.bioceptive.com. More recently I’ve invested in some promising companies such as www.sixday.com and www.axosim.com  I’ve also been directly involved in a co-founder capacity with a few other companies over the past several years including www.radolo.com, www.aligntoday.com and www.rasa.io.

Q: You’ve recently taken over as the lead executive at one of your companies, rasa.io. Give us the rasa.io elevator pitch.

Sure. Rasa.io was originally incubated within Aptify’s Innovation Labs. Innovation Labs was a group I started within Aptify a number of years back whose charter was to go experiment with new forms of tech and find ways to apply it in a disruptive (not an incremental) way for associations and non-profits. Innovation Labs created a bunch of great improvements for the Aptify product over the years including some patent pending technology that dramatically improved the user experience within Aptify’s software. Innovation Labs also came up with the idea of personalized content curation using private association data and public content. Before selling Aptify I spun out rasa.io because I knew I wanted to keep rasa and focus on growing it. Once I was a couple months past the Aptify sale I decided to really dig in on rasa and focus on it personally because I believe rasa.io can solve one of the major domain problems in the association market… So here is the pitch:

Associations are good at doing things that drive deep but infrequent engagement – think about conferences, education programs and publications – all mainstays of association business and value creation. Great stuff but these things only happen annually, sometimes quarterly, at most monthly.

Associations do not typically do a good job of shallow and frequent engagement. That is, the opposite of what they do well — doing things that a member has a reason to interact/engage with on a regular basis – daily/weekly.

The above is what we call “The Association Engagement Gap”. That is, associations basically don’t have a good reason to talk to members on a regular basis, daily or weekly.

This is a huge issue because today people are inundated with content on an hourly basis on mobile and web and they don’t pay attention to anything for very long.

In addition, the social science behind habit and consumer brand loyalty is very clear – FREQUENCY IS KING. That is, frequency predicts habit formation – if you are interacting frequently with someone you are much more likely to have that person form a habit with your brand than if you interact with them infrequently but in a deep way (such as a conference)

Associations have 2 of the 3 things they need to solve this problem and “bridge the gap”. They have a great brand and they have a latent but extensive data set that provides hidden insights into consumer preference in their market. Yet they don’t really do much with their brands or their data.

The 3rd leg of the stool in solving this problem is a specialized form of Artificial Intelligence – which is what we’ve built – the AI will take the associations private data and then curate public content to create a daily email for each member that is relevant and personal. The AI is able to take into account preferences, areas of interest, relationships and much more. Over time the AI learns from a user’s behavior and automatically tailors more content to their likes and dislikes and is also able to share new content ideas based on trends in the market that are likely to be a fit for each person.

The ultimate goal is to assert the brand of the association as a must-have/go-to daily resource for the key news that someone needs in a given profession or industry.

This leads to broader and deeper engagement and that drives better results in traditional association lines of business like membership and conferences, but also create opportunities for new forms of monetization.

Summary: rasa.io delivers a truly personal daily briefing to your members of the things that matter most to them. In addition, rasa sends data back to your AMS, CMS, LMS and other systems signaling what each person is really focused on so the rest of your organization can more effectively serve them.

Q: Why do you think investors are increasingly interested in the association technology market?

Each investor has a different thesis on why the market makes sense, there are 2 or 3 different approaches I see active in the space at different stages of companies.

Q: Any predictions on what the next year will bring in the way of investment and M&A activity in the association sector?

I think you’ll see more of it, beyond that I don’t want to venture any guesses.