Making MarCo Happen
MarCo is about bringing three ideas together:
- The business model of Constellation Software
- The partnership of an anchor martech vendor with a fund
- The scale-up of the addressable market by tapping into AdWaste
We have discussed the first and third points. The second one needs an explainer.
Funds typically don’t like to get into running businesses. While some PE funds do take over and operate businesses, they do so on a big scale (hundreds of millions of dollars to a few billion dollars). Its typically a single business where they work with the existing or new management team to build out the business after their entry, in preparation for an exit in a few years, hopefully generating an IRR of 25% or more.
MarCo has a different approach. The anchor martech vendor becomes the operator of the acquired businesses. It has deep understanding of the martech space and also a base of customers and existing tech. As such, it is ideally placed for doing roll-ups. But because of the constraints I mentioned earlier (slowing market growth and limited availability of capital based on its own balance sheet), it cannot make the bigger acquisitions on its own. The fund structure gives it the leverage to do bigger deals.
For investors in the fund, they get a partner who has skin in the game by virtue of the anchor martech vendor’s investment. They get access to a management team which knows how to build and scale businesses. They can consolidate a fragmented industry to create more value. The AdWaste opportunity becomes an added attraction. For entrepreneurs and founders seeking an exit in troubled times, MarCo becomes the perfect partner – an alternative to shutting the business down when capital runs out. For digital businesses, they get better products which are tightly integrated rather than loosely coupled together. They also can look at solving problems with off-the-shelf solutions rather than trying to build them on their own. They don’t need to worry about their seller failing or shutting down. In short, it’s a win-win for everyone on the ecosystem.
Over time, MarCo can create a playbook like Constellation Software has done to simplify the acquisition process. It can also create a business system that ensures management and operational efficiencies. The growth by acquisition model has been used in many industries. What is new here is its application to a single software domain (martech) to build and realign one of the most important industries of our times – selling to billions of customers digitally and making money from them.
MarCo is an idea whose time has come!
