Adobe (NASDAQ:ADBE) announced that it will acquire Neolane for $600 million in cash. Neolane executes campaigns across the web, email, social, mobile, call center, direct mail and point of sale, thus, delivering consistent customer experiences and personalized campaigns through this mix of channels. Although, Adobe offers online marketing campaign management solutions through its CQ software, this acquisition has extended Adobe’s reach into offline campaign management. 
Following the integration with Neolane, Adobe can offer a broader spectrum of marketing solution to its clients. While Adobe can integrate Neolane Marketing Resource Management tool for planning, spending and resource allocation in pre-campaign management, it can also use Neolane Interaction tool for sending orchestrated, personalized messages across channels for post-campaign management to attract and retain customers. Once the acquisition is complete, Neolane’s more than 300 employees are expected to join Adobe digital marketing division.
Why Is This Acquisition Important For Adobe?
Digital Marketing is gaining momentum as companies are increasing spend on it. According to IT research firm Gartner, firms generally spend 2.5% of their revenues on digital marketing and the spending is expected to increase by 9% in 2013.  Importantly, according to Gartner, 50% of the digital marketing activities get outsourced.
Adobe had forayed into digital marketing with the acquisition of Omniture in 2009, and currently offers five products under its marketing cloud solution. This division is Adobe’s third largest division and makes up 10% of its value by our estimates. However, with this acquisition Adobe can now fill a longstanding gap in its campaign management with Neolane’s offline campaign management services.
Currently, the digital marketing arm of Adobe (Omniture and its products) has revenues of nearly $550 million and as the digital marketing market grows, it can meaningfully impact Adobe’s top line in the near future. This acquisition is important in light of the fact that Adobe is aiming to increase its revenues from cloud based marketing solutions going ahead.
Is Adobe’s Acquisition Justified?
Neolane reported revenues of nearly $58 million in 2012.  Adobe paid $600 million for Neolane and the price to sales multiple for this acquisition works out to 10.58x, which is lower than the 17x sales multiple paid by Salesforce (NASDAQ:CRM) for acquiring Exact Target. With this acquisition, Adobe now has access to Neolane’s 400 clients. Additionally, this acquisition also bolsters Adobe’s presence in Europe, where Neolane has most of its customers. This acquisition also further enhances Adobe’s ability to help chief marketing officers create distinctive customer experiences and bring them to market with speed. This acquisition is expected to close by the end of this month.
We currently have a $41 Trefis price estimate for Adobe, which is 10% below its market price.Notes: