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The Deal: Adobe Buys France's Neolane for $600 Million

NEW YORK (TheDeal) - Adobe Systems (ADBE)'s $600 million purchase of French marketing campaign management company Neolane Inc. promises to advance the digital media software developer efforts to expand its presence in cloud marketing.

Neolane, which received venture funding from Battery Ventures LP, Auriga Partners SA, XAnge Capital and Chairman Gilles Queru, manages campaigns that include e-mail, mail, call centers, mobile devices and social media. The company describes its services as "conversational marketing" that can be geared toward individuals. Its customers include global firms such as Barnes & Noble Inc., Christian Dior SA, AXA Group, Inter IKEA Systems B.V., Samsung Electronics Co. and Sony Corp., with a weighting in retail.

On news of the deal, Adobe shares were falling 1% to $45.48 on the first day of trading since the deal was announced.

Neolane may have gained value following some recent deals. "Clearly a catalyst for this acquisition was Salesforce.com Inc.'s recent $2.5 billion purchase of ExactTarget Inc.," wrote Ovum plc analyst Gerry Brown in a Friday research note.

Salesforce announced a deal to acquire ExactTarget on June 4.

Brown added that San Jose, Calif.-based Adobe is said to have looked at ExactTarget and at Eloqua Inc., which Oracle Corp. purchased in December, and may have been motivated by the scarcity of assets. "Adobe was likely compelled to act before all the campaign management best-of-breed vendor acquisition options evaporated," he wrote.

The deal valuation comes to more than 10 times Neolan's $58 million in 2012 revenues. Brown viewed the transaction as costly but worth the price, as it would fill "a glaring hole in its digital marketing platform proposition."

However, Evercore Partners Inc. analyst Kirk Materne noted Thursday that the price falls in line with other transactions, when gauged by projected 2013 sales.

Neolan had 40% revenue growth last year. If the company grows its topline by 30% in 2013, Materne wrote, the payout would come to 8 times sales. Oracle paid about 8 times 2013 sales for Eloqua and Salesforce's acquisition of ExactTarget came to about 7 times the target's top line.

Cloud marketing company Marketo Inc., of San Mateo, Calif., has an enterprise value of about 9 times 2013 revenue, by the analyst's projections.

Materne suggested that the purchase is a natural move for Adobe, and would dovetail with previous acquisitions such as the $1.8 billion purchase of web analytics company Omniture Inc. in September 2009; data management outfit Demdex; and digital advertising company Efficient Frontier.

Neolane is strong in retail and in its native market of France. While the target's roots in Paris carry benefits in the European market, they could also involve risk for Adobe.

"Neolane is very 'French' with some strong and forceful personalities at the top of their organization," Ovum's Brown wrote, noting issues that SAP AG encountered with its ¿4.8 billion ($6.3 billion) purchase of French business software company Business Objects SA. Following the deal, he added, "there was an exodus of BusinessObjects executives, resulting in stagnating innovation and a loss of key product knowledge and skills."

Manage with care, Brown advises.

For legal counsel, Adobe retained a Weil, Gotshal & Manges LLP team including Jane Ross, Keith Flaum, Tyler Tassin, John Brockland and Edric Itchon for legal advice.

Written by Chris Nolter in New York

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