By Brenon Daly
It's been exactly a year since Vocus (VOCS) rolled the dice on its largest-ever acquisition, and in the view of Wall Street the company has come up snake eyes. The February 2012 purchase of iContact, which nearly cleaned out Vocus' treasury and caused a bit of acquisition indigestion, spooked investors. Since the deal, shares of the marketing software vendor have been nearly cut in half.
The decline has left the company a relative bargain in a market that has seen platinum valuations, both in terms of trading multiples and M&A valuations. Vocus garners a market cap of $285 million, or just 1.4x its projected revenue of about $200 million in 2013. That paltry valuation comes despite an accelerating bookings rate of roughly 20% forecast for this year, about $25 million of free cash flow generation and a re-engineered suite of offerings serving a neglected segment of the market (mid-sized enterprises).
The last point is a key one for Vocus, which went public in 2005 as a single-product company. In its initial years, Vocus sold to PR firms, primarily helping them distribute their releases. In 2011, the company began expanding its portfolio, both through internal development and M&A. It acquired two small companies that year that brought technology around marketing on Facebook (FB) and Twitter. By the end of 2011, it had integrated those deals along with internal efforts into a single marketing platform.
Early sales for the integrated suite were encouraging for Vocus, reflecting the fact that marketing automation requires a number of offerings. (Many other players in this space -- including ExactTarget, Marketo, and Constant Contact -- have all used M&A to build out a suite.) It then reached for iContact to add the outbound marketing piece of technology.
The acquisition, which bumped up Vocus' revenue by about one-third overnight, required a fair amount of integration. Vocus says that work is behind it, and it can focus on selling its marketing suite. Assuming the company does hit its guidance of 20% bookings growth this year, it will mark the first time since 2008 that it has grown at that rate. Of course, Vocus was only generating about one-third the amount of sales then that it expects this year. And even then, Vocus shares traded higher than they do today.