Category: Analysis

Association Technology M&A and Investment Visualization

I’m preparing for a couple of presentations on consolidation in the association technology sector (including at AMS Fest, November 13-14 in Washington, DC), and wanted to share this visualization in my slide deck of how technology companies are aligning, and which ones have taken investments. This isn’t a complete view of the activity, and covers about a two year period, but it should help you grasp the extent of the consolidation. If you’re reading this in your email inbox, download the images, or click through to see the visualization.

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.

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.

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.

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.

SURVEY: How do funding models affect buying decisions?

I’m conducting a three-minute survey on how various funding models affect decision-making in the buying process. If you’re reading this in your email inbox, please click through to complete the survey. A summary of the responses will be posted here, and an analysis of the data will be presented at AMS Fest in Washington, DC, November 13-14 as part of a session on M&A and investment activity in the not-for-profit technology sector. Your response will be held in confidence.

ANALYSIS: NimbleUser joins Community Brands family

A mere three weeks after Aptify and Abila got under the Community Brands umbrella, on April 26, 2017 it was announced that NimbleUser would be joining them.

NimbleUser is a Rochester, NY based company that has spent the last decade building a Salesforce-powered AMS called NimbleAMS. Prior to releasing the NimbleAMS product in late 2011, NimbleUser was an iMIS reseller and Solution Provider. A family owned business up until a few days ago, Sig VanDamme is the Founder, his wife, Dawn, serves as CEO, and Joe Klimek serves as President.

Industry observers had mixed reactions to the deal. Some were surprised, knowing that Sig and Dawn have a strong commitment to the city of Rochester, and their company culture —  a deal that could risk the product of their life’s work seemed out of alignment with their values.

Others saw the writing on the wall: NimbleUser was one of only a few enterprise AMS companies to have not taken any funding. NimbleUser needed growth capital to accelerate product development. A phone interview with Sig VanDamme confirmed it. He said the alternative, continuing to fund research and development out of their own revenues, would result in delayed time to market for a number of initiatives they had on their roadmap.

Interest among association technologists in Salesforce-based AMS products has been climbing along with Salesforce’s rise to become one of the world’s most innovative and largest companies. Hitching your AMS to a database core that receives almost a billion dollars of R&D annually is attractive. But all that R&D money comes at a cost: Salesforce-based platforms are among the most expensive solutions on the market, competitive with other enterprise-grade AMS platforms.

NimbleAMS competes head-to-head with Fonteva’s MemberNation platform, which is also Salesforce-powered. They also compete (less directly) against other enterprise-grade AMS platforms like Personify, iMIS, Abila’s netFORUM Enterprise, and Aptify.

That’s right! If you’re keeping score at home, Community Brands now has three enterprise-grade AMS platforms in its pen: NimbleAMS, Aptify, and netFORUM Enterprise. While it’s still very early in Community Brands’ history, this fact should serve as evidence that they intend to deliver on the promise to allow its companies to compete for business. After all, why would anyone add another competitor to the pen if you didn’t really expect them to fight it out?

At the same time, some industry insiders acknowledge that this deal reduces choice for enterprise-grade AMS products; three of the seven are now owned by the same parent company. In interviews I conducted with association technology consultants, some prospects now feel like they’re “negotiating with themselves.” How much leverage does a prospect really have when they press two companies owned by the same parent for better contract terms?

What does this deal mean for NimbleAMS customers? In my view, not much. A Salesforce-powered AMS should be expected to stand on its own for as long as Salesforce is in business. Any risk that Nimble might be merged with Aptify or netFORUM Enterprise is very remote. However, based on a pattern that I’ve witnessed with other family owned companies that become investor-backed, there is a higher risk that the business processes will be more substantially impacted than a company that passes from one investor to another. NimbleUser customers should be prepared for some adjustments in the transition.

ANALYSIS Part 4 of 4: YourMembership leads the Community Brands consolidation

In the time since the Community Brands deals were announced, I’ve spoken with senior executives at Abila, Aptify, YourMembership, and some of their competitors. I also attended the Abila Users & Developers Conference, speaking with their customers and consultants, and listened to a keynote presentation from JP Guilbault, Community Brands’ CEO.

I’ve been analyzing the implications of this deal from the standpoint of each company wrapped up in the transaction, based on the conversations I’ve had with my sources.

Today’s post is about YourMembership.

It’s safe to say that YourMembership (YM) is the lead company in the Community Brands consolidation. The CEO of YM, JP Guilbault, has ascended to the title of CEO of Community Brands and holds the title of CEO for both Aptify and Abila.

For background, in the past five years, YM has made a rapid rise to become a powerhouse AMS. In late 2012, YM (which stood with about 1,000 clients at the time) acquired Affiniscape, an Austin-based AMS with about 1,200 clients, making them one of the major AMS players in the small to mid-sized association market.

The Affiniscape acquisition was bumpy for customers, according to most accounts, and on ReviewMyAMS.com, you can see a pattern of customer dissatisfaction on YM right after the merger. Much like the Avectra/Abila merger, many of the Affiniscape staff departed shortly after the acquisition. Despite assurances made at the 2012 Affiniscape users conference that a best of breed AMS would come from the careful analysis of both products, clients were notified after the acquisition that their product would be deprecated, and a migration to YM would their only choice — unless they wanted to move to another AMS. Clearly, this angered many Affiniscape clients. Adding insult to injury, many Affiniscape clients felt their migrations to YM weren’t handled with care. Ultimately YM doubled down its investment on migrations and the experience improved. It took years for YM to undo the damage, but they eventually did, and now they enjoy a mostly happy clientele. JP Guilbault admits that he reflects on the Affiniscape acquisition as a learning experience, and one that he vows not to repeat.

But doubling their customer base with Affiniscape was only the beginning. YM acquired job board platform Job Target and learning management system platform Digital Ignite. Years after these acquisitions, the former CEOs of Job Target and Digital Ignite are still on staff with YM, their offices are still in place, as are many employees of those acquired companies. I believe this is evidence of a learning lesson from the Affiniscape acquisition, and is hopefully a foreshadowing of what should be expected for the Abila and Aptify deals, as well as future deals.

These acquisitions, combined with the development of an expertly executed marketing and sales strategy over the past five years resulted in YM being catapulted to one of the leading AMS and technology providers in the market, both in terms of customers and revenue. For this effort, YM was acquired by Ministry Brands in February 2017 for a hefty price tag of approximately $300 million, it’s rumored.

YM customers will be the least affected by this consolidation, according to the industry observers I’ve spoken to. They expect the inertia of JP Guilbault’s tenure with YM to continue for the foreseeable future. Because of this, we can predict that the products, office culture, pricing models, customer service practices, and staff from the legacy YM company to be more difficult to unseat going forward under Community Brands than those of Abila and Aptify.

Therefore, Abila and Aptify personnel and customers should expect aspects of YM’s business practices to be applied to them. That change may be painful at first, but in the long run, it will probably be for the best, as the personnel will be more efficient as duplicative processes are eliminated.

Most consultants and YM customers we’ve spoken to are taking a cautious, wait-and-see approach. Most customers seem to have gotten over the problems experienced during the Affiniscape merger. But like any AMS customer base, there is a contingent of unhappy YM customers, and this contingent sees the Community Brands consolidation as a distraction from the work that needs to be done to stabilize and enhance the products. And to be fair, there is a contingent of YM customers that is excited about the growth and innovation opportunities afforded by YM’s access to hundreds of millions of dollars to invest in their products.

Perhaps the greatest opportunity for YM in the short term is to expand its ancillary products and services into the new customer bases. I’m interested to see how aggressively YM Learning, YM Marketing, and YM Careers will be promoted to Abila and Aptify customers.

Industry insiders believe YM, as the lead company in this consolidation, will be challenged to balance profitability on the one hand, with guarantees of no forced migrations on the other. In particular, YM’s Digital Ignite is a direct competitor to Abila’s LMS, Freestone. And Abila’s netFORUM Pro is often considered head-to-head against YM’s AMS. In a typical consolidation, one product would be deprecated in favor of the preferred product. But as we’ve described in these analyses, this is not your typical consolidation.

ANALYSIS Part 3 of 4: Abila joins Community Brands

In the time since the Community Brands deals were announced, I’ve spoken with senior executives at Abila, Aptify, YourMembership, and some of their competitors. I also attended the Abila Users & Developers Conference, speaking with their customers and consultants, and listened to a keynote presentation from JP Guilbault, Community Brands’ CEO.

I’ve been analyzing the implications of this deal from the standpoint of each company wrapped up in the transaction, based on the conversations I’ve had with my sources.

Today’s post is about Abila.

For background, Abila was formed out of the merger of Avectra and Sage Nonprofit Solutions in July 2013, a deal financed by private equity firm Accel-KKR. Up to that point, Sage and Avectra had little in common. Avectra offered two tiers of its AMS software (netFORUM Pro and netFORUM Enterprise), and Sage offered a suite of products for charitable organizations, the most significant of which was a fund accounting package (Sage MIP). Krista Endsley, Sage’s General Manager, was named CEO of Abila after the merger.

Significant turnover at the Avectra offices ensued soon after the merger. Virtually the entire executive suite turned over. Some industry insiders characterized the transition as rocky, and one longtime Avectra client I spoke to called it “chaos.” My sources tell me that Abila leadership, in hindsight, regretted the mass exodus of personnel.

With its round of funding from Accel-KKR, Abila went on to acquire Peach New Media, provider of an LMS platform called Freestone. With an expanding line of products, industry observers expected to see Abila take a page out of YourMembership’s playbook and make additional acquisitions; but those deals never materialized.

Abila’s CEO Endsley departed the company in February 2017 and was replaced by Craig Charlton, an Accel-KKR advisor. Her departure was coupled with rumors (substantiated by well-placed sources) that Abila had been shopping around for a buyer since 2015. The Abila deal closed one month after Charlton was hired. Some conjectured that Charlton was hired just to get a deal done, but he vigorously denies that rumor.

Abila brings a large DC-area office to Community Brands, an asset that YourMembership has lacked.

Abila’s customer base of approximately 8,000, when taken as a whole, could be described as all over the map. There are approximately 300 large association clients running netFORUM Enterprise, around a thousand netFORUM Pro clients (trending small-medium sized), about 6,000 nonprofit (not association) clients running Sage products, and around 100 Freestone clients.

The short term effects of the Community Brands deal aren’t that significant for Abila customers, in my view. Many Abila staff have been through a merger before, giving them experience to draw from, and I predict the disruption for Abila customers will be minimal. From experience, we’ve learned that the transition from one private equity firm to another gets easier with each subsequent investment.

The long term effects will be interesting to watch. Community Brands staff will be challenged with how to manage three Abila products that compete with other products in the Community Brands portfolio.

  • netFORUM Enterprise vs. Aptify
  • netFORUM Pro vs. YourMembership
  • Freestone vs. Crowd Wisdom (aka YM Learning and Digital Ignite)

Abila’s purchase price was rumored to be in the $150-$200 million range.

ANALYSIS Part 2 of 4: Aptify joins Community Brands

In the time since the Community Brands deals were announced, I’ve spoken with senior executives at Abila, Aptify, YourMembership, and some of their competitors. I also attended the Abila Users & Developers Conference, speaking with their customers and consultants, and listened to a keynote presentation from JP Guilbault, Community Brands’ CEO.

Over the next few days, I’ll analyze the implications of this deal from the standpoint of each company wrapped up in the transaction, based on the conversations I’ve had with my sources.

Let’s turn our attention to the most interesting addition to the Community Brands family, Aptify.

Of the three companies coming together under the Community Brands family, Aptify is the most surprising according to industry observers. The founder of Aptify, Amith Nagarajan, has long boasted the idea that Aptify is a privately owned firm that was fiercely committed to its independence from the influence of investors, and it was an important aspect of their sales pitch.

Aptify even went so far as to become Evergreen Certified, which touts the benefits of privately held businesses:

Taking advantage of the ability of closely-held private companies to have a longer-term view, greater confidentiality around strategies, and more operating flexibility than public or exit-oriented businesses.

Given this commitment, it seems shocking that Nagarajan would sell Aptify. But people close to Nagarajan had different perspectives on his decision. Some said the exit was unexpected, with Nagarajan still substantially involved in decision-making at Aptify and constantly touting the company’s Evergreen status.

Others weren’t surprised, knowing just how much investment money is flowing through the sector, and stating that he had expressed boredom with a technology environment that moved slowly compared to some of the other markets in which he has founded businesses. His need for speed comes as no surprise to those who know him well. Nagarajan is widely regarded in the association sector as a brilliant technologist and entrepreneur, and is rumored to have a dozen companies in his portfolio.

Nagarajan will stay on as a strategic advisor to Community Brands, but will not have any day-to-day responsibilities.

Aptify brings an upper-echelon clientele to Community Brands. Their 100+ clients tend to be among the largest associations measured both by members and revenue. This may be because Aptify is more white-glove-service oriented than many of its competitors, with a large professional services team, much of which works in India. This offshore development team may also be an asset to Community Brands.

Aptify also brings an Australasian office (based in Sydney) to Community Brands, giving the consolidated company a foothold in a new growth market.

Most industry observers I spoke to expect Aptify customers to experience a more difficult transition to new management than other customers. Aptify customers almost universally know Nagarajan, the company founder, personally. As a privately-held business, Aptify had a substantially different culture than equity-backed YourMembership and Abila. Employees at Aptify are experiencing their first change in ownership. Many customers have highly customized databases (though Aptify prefers to call them “configured”). Management at both YourMembership and Abila have been less inclined to take on custom work, and there will be tension between that posture and Aptify’s willingness to give clients virtually whatever they wanted (as long as they paid for it).

This transition isn’t a bad thing; whatever difficulty is experienced by Aptify customers and employees will be temporary. Based on experience with similar deals, we can expect that Aptify will emerge stronger in the end.

Industry insiders will be watching closely for clues on how Community Brands intends to manage two products in its suite (Abila’s netFORUM Enterprise and Aptify) that compete in the same niche.

It will also be interesting to see what happens to Aptify employees after the dust settles. Aptify’s business model is very different than that of Abila or YourMembership, and it’s difficult to imagine how Community Brands personnel could reconcile competing service strategies if asked to serve two kinds of customers: those who are accustomed to white-glove-service and those who expect more out-of-the-box solutions.

Aptify’s purchase price was rumored to be in the range of $75 million.