Hootsuite Media Inc. has abandoned a process that could have led to a sale of the company after preliminary offers came in below expectations, according to sources familiar with the matter.
In October, the Vancouver firm, which makes social-media-management software, hired Goldman Sachs Group Inc. to look at options in what one source described as a “price discovery process.” The idea was to see whether it could get the kind of lofty valuation that marketing software firm Marketo Inc. commanded a month earlier when Adobe Systems Inc. agreed to buy it from Vista Equity Partners, for US$4.75-billion – more than two-and-a-half times what Vista had paid in 2016.
Hootsuite entertained conversations with dozens of private equity firms and a handful, including KKR & Co. and TPG Capital, indicated how much they’d be willing to pay, subject to completing a due diligence process, according to sources familiar with the matter, who were granted anonymity because they were not authorized to speak publicly on the matter.
But the sources said those offers topped out in the range of US$650-million to US$700-million. That’s less than the US$750 million – about $1-billion – the company was seeking, investment bankers who were not authorized to speak publicly told The Globe and Mail in October.
As a result, Hootsuite ended the process early, about a week before Christmas, sources told The Globe this week.
Hootsuite CEO Ryan Holmes declined to comment on Wednesday. Greg Perotto, vice-president of marketing, did not answer questions about the Goldman process in an e-mailed statement, but said, “To date there has not been a compelling offer that would change our desire to grow as a private business.”
A spokesperson for Goldman Sachs declined to comment on the status of the auction.
The potential sale process unfolded at a difficult time in the public markets, when the S&P 500 fell 14 per cent in the fourth quarter of 2018 and tech giants such as Facebook Inc. lost more than 20 per cent of their value.
The end of the potential auction coincides with numerous departures of senior-level Hootsuite employees, including senior vice-president of sales Bob Elliott, sales vice-presidents Chris Saniga and Phil Edgell, and key tech executives Mik Lernout, vice-president of product, and André Viljoen, vice-president of technology.
They are the latest in a string of high-level departures from a company that was one of the leaders of Canada’s high technology renaissance early this decade. Hootsuite is set to bring on a senior vice-president of product and technology in February, replacing Andrew Handford, who left 15 months ago. Hootsuite’s last chief technology officer, Ajai Sehgal, left in early 2017.
There could be many more departures in the near future; one source said the company heard during the process its employee ranks had grown too large. Directors were expected to discuss the topic of whether Hootsuite should slash costs in the wake of the auction process at a board meeting on Thursday.
The 10-year-old company has about 1,000 employees. Hootsuite’s Mr. Perotto said the company plans to hire sales and technical staff to underpin further growth, but declined to specify how many. He also declined to comment on the departures, but said a growing technology business sees employees coming and going “as a regular course of operation.”
While the company repeatedly missed quarterly sales targets in the past, the attempted sale came as Hootsuite’s business has improved, according to several sources. Hootsuite’s 2018 revenue is about US$170-million, close to its target of US$180-million, and it is growing at a rate of about 25 per cent.
Hootsuite grew out of Mr. Holmes’ internet services and marketing consulting company, Invoke Media, in the late 2000s. Hootsuite became a software tool to help Invoke’s corporate customers manage their multiple social media accounts as new platforms including Facebook, Twitter and LinkedIn rapidly transformed and complicated the way companies communicated with their customers.
By late 2011, the recently spun out Hootsuite was generating $1-million in monthly revenue. Hootsuite raised about $250-million in venture capital financing through 2014, from big names such as U.S. venture funds Accel and Insight Venture Partners, Boston-based Fidelity Investments Inc. and OMERS Ventures, a division of the pension giant.
But its business faces several challenges. Its software is reliant on deals with companies such as Facebook and Twitter. Hootsuite also faces increasing competition from large public companies such as Salesforce.com Inc. of San Francisco and rival upstarts such as New York’s Sprinklr Inc. And a long-promised initial public offering has never materialized.
Fidelity, which invested US$20-million in Hootsuite as part of a 2014 financing wrote down the value of its stake to US$14.5-million in mid-2017 and increased it to US$19.1-million a year later according to securities filings – still below what it paid. But with valuations falling well short of the $1-billion threshold the company was seeking, some employees who were hoping to cash out their equity in a successful auction may decide to leave, one source familiar with the company said.
The $1-billion valuation is a psychologically and financially significant mark for the company. A valuation wasn’t officially published in 2014 at Hootsuite’s last equity financing, but it was reported at the time at around $1-billion. In early 2017, Bloomberg News reported the company had never been worth that much. Mr. Holmes, in response at the time, said on Twitter that Hootsuite was “definitely” worth more than $1-billion. He then directed a vulgar tweet at the reporter of the story.
With a file from Andrew Willis
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Sean Silcoff
David Ebner