Fireside Chat 

Featuring  

David Williams, Former Chairman and CEO, Merkle 

Hosted by 

Michael Seidler, Founder and CEO, Madison Alley Global Ventures 

May 5, 2021 @ 12pm ET 

EXECUTIVE HIGHLIGHTS 

Introduction   

MadisonAlley.tv virtually hosted an exclusive Fireside Chat featuring David Williams, Former Chairman and CEO, Merkle. 

Merkle was acquired by Dentsu Aegis Network in 2016 for a reported $1.5B valuation. 

Overview of David Williams 

• Former Chairman & CEO of Merkle, the leading technology-enabled, data-driven customer experience management (CXM) company 
• In 2016, Dentsu Aegis Network acquired 66% of Merkle for a reported $1.5B valuation, and acquired the remaining 35% in 2020 
• Current Board Member, Head of M&A Committee, and member of Tech Committee of dentsu international 

 Snapshot of Merkle 

• Founded in 1971 
• Acquired and led by David Williams since 1988 
• Headquartered in Columbia, MD 
• $35M total invested capital 
• 28 acquisitions in 32 years under David Williams’ leadership 

• In 2016, 66% of Merkle was acquired by dentsu for a reported $1.5B valuation; the remaining 34% was acquired by dentsu in 2020 

– Interview – 

The Beginning: David Williams Acquires Merkle Computer Systems 

Michael Seidler: “Let’s begin from the beginning, when you first acquired Merkle back in 1988. You were 25 years old. How did you find Merkle? Why did you acquire it? And what was the beginning like? 

David Williams: “One of my customers owned (this company) called Merkle Computer Systems and he started talking about selling that business. I actually traveled to Maryland to try to get the engagement to represent him in the sale of the business. It was a $2.5M business, about $800K EBITDA, at the time, and it was a $5M transaction. At the end of that time, I said, “Hey look, I’m going to try to buy this business myself.” I was a young man, 24 during that process, and it took me a year to figure out how to raise the money, but ultimately raised the money and ended up acquiring that business 11 months later.” 

At the time, Merkle was a small data processing company that was managing mailing lists for second-class publications (i.e., “Sports Illustrated”). David recognized that there was little growth in managing mailing lists, but that direct marketing was gaining traction in the industry, and he decided to pivot the business. 

David transitioned the business to focus on the direct marketing industry, changing Merkle’s capabilities to focus on relational databases, as the space grew from a $10B industry, to its peak of $46B in 2007/2008. 

The company established itself by winning large engagements with Dell, Microsoft, and others by offering large databases and case studies at competitive pricing, putting the business on the map in the direct marketing space as its capabilities and services offered evolved. 

 Capabilities, Services, & Data 

Williams: “Merkle 1.0 was really a data processing area, but we ultimately pivoted the business (to build relational databases), and that sort of put us on the map. The third evolution of Merkle was really adding a data and analytic capability. We were probably one of the first data-oriented companies to really offer analytic as a service which really became sort of the heart of our competitive advantage. ” 

Williams described this evolution of services as what ultimately led Merkle to Technology Crossover Ventures (TCV), which joined as an outside investor in 2010. That said, Williams believes that Merkle’s culture and recruiting process was its greatest competitive advantage enabling its success as an industry leader. 

Scaling to $250 Million 

Williams: “Relatively early on, we won the MCI business…we saw ourselves getting all of our credibility from our clients. From there, we won DIRECTV, which is still a Merkle client today. We won Dell, which is also a client today. We won Geico, which is still a very large Merkle client today. It was just sort of one customer at a time trying to build that level of credibility.” 

Williams explained how landing Capital One as a client allowed Merkle to enter the credit card space during its boom in the 2000s. Merkle ultimately created vertical markets (I.e., healthcare financial services), a rarity at the time, as a sequential evolution that was integral to the business’ growth. 

In 2008, Merkle evolved yet again, shifting its core competencies to digital media. This transition was the biggest growth cycle for Merkle, as the company was able to take the lessons learned from direct mailing and apply them to how companies were targeting customers on the Internet with a sophisticated, unparalleled strategy. 

Capital Raising 

Merkle was not well capitalized until Technology Crossover Ventures’ (TCV) investment in 2010. The company was profitable, generating a lot of cash, and access to debt from its banking relationships, leveraging the business’ balance sheet to focus on building scale as quickly as possible. 

When Merkle was ready to raise capital, Williams’ bank debt strategy allowed Merkle’s bank to provide credibility in the business’ valuation during the capital raising process. Williams described his strategy of evaluating the term sheets and theses provided by potential investors, noting that TCV was the most sophisticated of offers. Merkle went on to raise $75M from TCV, selling slightly less than 20% of the company. 

Capitalizations & Acquisitions 

Seidler: “Talk a little about the acquisitions and to the extent that those were significant.” 

Williams: “We found M&A to be a really productive tool on a couple of fronts: that it was great from either a product expansion or service expansion—what we could consider a vertical market expansion –or a geography expansion.” 

Williams spoke candidly about how Merkle’s organic growth represented 70% of its total growth whereas M&A growth represented 30% of its overall growth. 

Williams then went on to explain that Merkle’s M&A strategy focused on the process behind acquisitions, emphasizing the importance of maintaining a genuine and transparent relationship with sellers. 

M&A Planning & Strategic Exit 

In preparing for Merkle’s acquisition by dentsu, Williams noted that his strategy was originally to find another private equity firm to replace TCV by investing a “major minority” (I.e., 40%) stake in the business. 

Williams: “dentsu did a good job of nurturing a relationship with us and put together a structure that had more of a private equity feel to it, but with a strategic partner.” 

Williams noted that this was a difficult decision for the Merkle team, as the company policy had previously discouraged talks about exits. He also recognized the value in Merkle’s relationship with TCV during this process and how aligned the firm was with Merkle’s intention, never putting pressure to, or even mentioning, an exit. 

He also mentioned the value that he and Merkle gained from their relationship with private equity, specifically with respect to board creation and overall accountability, stating that the business would have been more successful had they engaged private equity earlier on. 

Leadership at dentsu 

Seidler: “dentsu seems to have stood out in your mind in terms of their interest and really how they approached Merkle. Could you talk about dentsu’s interest in Merkle and the strategic premium value they believed they could gain from acquiring the business?”  

Williams noted that there were a few reasons for dentsu’s interest in Merkle: “We had a capability that they just didn’t have at all—the data management world. They didn’t have to integrate us into anything because we had the maturity to stand on our own and plug in as a line of business. (Further) the global footprint that we had built and our ability to do so, (signified to them) that we could continue to build that business.” 

Merkle grew rapidly in their first four years at dentsu, doubling the size of the company from around $550M to over $1B in 48 months. 

Williams also remarked on his leadership role at dentsu—joining the executive team of the $4.5B company, running a global business, learning a new culture, and now, sitting on the board of the international business. 

– Q&A – 

Jeremy Hlavacek, CRO at IBM Watson Advertising: “What do you think is the right data strategy for large agencies and holding companies in the future, given the regulatory changes?” 

Williams: “I don’t see regulatory as a major issue. I think data is like water–it flows to where it can flow. I think first-party data, clearly I think the cookie was probably the most flawed device ever created in terms of the internet, so we never built a big business there. But there’s very little evidence where a regulator is going to sit between a brand an individual. It’s where the third-party and second-party would come in that I think you need to be a bit more concerned.  

I think the agency world’s challenge with data is a cultural problem. It’s a different world. It’s a different business. The agency that gets the DNA dimension right—the sort of blending that the DNA of an agency versus the DNA a tech-enabled services business, that’ll be the winner.” 

Madhav Mirani, Co-Founder and Chief Commercial Officer at Ugam Solutions: “As you look back at your exit to dentsu, how satisfied are you with how Merkle has fit into the organization?” 

Williams: “I’m very satisfied with how Merkle fit into what we set out to do. Some of these challenges that I’m talking about with DNA and culture, they’re true for dentsu and Merkle too. I don’t think we’ve solved it. But I think that Ugam’s another good example that was a transformational acquisition for us: world-class team, world-class people, a few thousand statisticians in India. These just aren’t the profiles of a company, like dentsu, at face value don’t know how to capitalize on a capability like that. It’s a different buyer. In many cases, it’s not a CMO buyer, so there’s a bunch of things that are happening there as customer experiences goes across the entire executive suite. I think the agencies are a little bit behind the eight ball right now and that’s an opportunity at the same time.”  

Barbara Sullivan, Founder & Managing Partner at Sullivan: “What’s been your biggest surprise as you’ve grown the company and (it has) been as successful as it is?” 

Williams: “I’m not surprised. I know that probably sounds so arrogant. It just took a long time, we worked really hard, and there was a really really dedicated group of people that dedicated their lives to Merkle—dedicated their careers to Merkle. We were in a big fragmented industry, so I’ve said to people, ‘I like our odds. Let’s just heads down, let’s keep going.’”