The role of Private Equity in Loyalty Technology

This week, we covered the singular announcement that Edited Capital, a private equity firm focused on B2B tech buyouts, had acquired Annex Cloud, a leading enterprise customer loyalty and engagement platform. As the press release said, “the partnership was another demonstration of Edited Capital’s growing reputation as a strategic partner for scaling B2B technology companies”.

Steve Scribner, CFO and Interim CEO of Annex Cloud, was quoted in the press release, punctuating the reason that Annex Cloud took on the equity partner, saying, “This partnership will enable us to accelerate our growth, expand our offerings, and continue delivering exceptional value to our customers.”

Edited Capital self-describes by saying that it “specializes in partnering with promising technology companies that have moved beyond traditional venture funding pathways, providing operational expertise and strategic guidance to unlock value and drive sustainable growth.”  The company joins a growing list of private equity companies taking positions among loyalty technology provider organizations.

In recent months, we have seen one of the largest technology firms in Poland and an influential player in the global loyalty market, Comarch, acquired by CVC Capital Partners. Last year CarltonOne Engagement, recognized as one of the top 50 most inspiring workplaces in North America, announced it received an investment from Goldman Sachs Asset Management.

Private equity is exerting a pervasive influence across the loyalty technology industry

• Antavo has investment from a total of 12 investors, with Euroventures as the lead investor
• In 2023, Bond, a leading customer experience and loyalty firm, announced a strategic investment in its business from Colorado-based private equity firm, Mountaingate Capital.
• Capillary Technologies is backed by a group of global marquee investors, including Sequoia Capital, Warburg Pincus, Norwest Venture Partners, and American Express Ventures. Earlier in 2024, Capillary announced the expansion of its Series D round to $140 million, fueled by the same set of investors led by Avataar Ventures.
• Clarus Commerce (now rebranded as ebbo) was acquired in 2019 by Marlin Equity Partners, a global investment firm with over $6.7 billion of capital under management. The investment was made alongside Norwest Venture Partners, a prior investor in Clarus.
• Exchange Solutions a personalized loyalty solutions provider, completed a recapitalization and growth round led by Clipper Ship Ventures. The growth capital was used to expand sales and marketing efforts throughout North America and expand the company’s SaaS loyalty and personalized offers capabilities.
• Marigold took on investment from private equity firm Vector Capital in 2021
• Talon One, the German-based loyalty provider, has raised a total of $3.4M over 2 funding rounds. One was a Series A round of $3.4M from IRIS, and the other was a Seed round of Undisclosed from BridgeLane and Square Peg Ventures.

That’s ten (10) well-known firms whose growth future is heavily influenced by outside investment groups. Another group of providers has been acquired by large technology or advertising firms as a strategic acquisition. This includes:

• Publicis Groupe acquired Epsilon in 2019
• Dentsu Group confirmed its 100% ownership of Merkle in 2020.
• CORA Group, an operating portfolio of Jonas Software, a subsidiary of Constellation Software Inc., announced the acquisition of Kognitiv’s Enterprise Loyalty Platform (ELP), with the newly acquired entity operating as “Carlson Marketing Solutions.”
• Paytronix was acquired by a UK Software company, The Access Group, in 2024

If you look at the Forrester Wave™ Loyalty Technology Solutions report in Q1 2023, there were 12 companies included. Four are in the private equity list above, two are in the strategic acquisition list, two have been rolled up through acquisition, and three are public companies (Mastercard, Oracle, Salesforce). Only one, Kobie, is privately held and, to our knowledge, operating without institutional investment of any kind.

Private equity firms have invested across all forms of business. We interviewed Tom Trkla, Chairman and Chief Executive Officer of Brookwood Financial Partners LLC, to do some myth-busting about the often uneasy relationship between private equity and the retail industry. In that interview, Tom pointed out that “each private equity firm has its unique perspective on investment and partnership … and there are a host of meaningful benefits that private equity firms can provide beyond capital itself to make a significant impact on the retail industry.”

We believe the same thoughts can be applied to the role private equity firms are playing in loyalty technology firms today.

• The best news is that the list of investments noted above speaks volumes about how customer loyalty and supporting technology firms are attractive to the investment community, ensuring continued growth and development.
• With the myriad of possible benefits from artificial intelligence in the industry, investors can likely justify further investment to propel growth and profitability into the future.

The balancing thought is that PE firms find it hard to support investment in service offerings outside of SaaS models that create predictable and recurring revenue. That means the professional services areas of loyalty technology providers are at risk when capital sources are led by outside investors.

There is a paucity of strategic advisory services available today from groups that are unbiased by an owned technology solution. No wonder that more of the strategic advisory work has fallen to the global consulting firms Accenture, Deloitte, and McKinsey.

In this story, there is both risk and opportunity for brands that depend on loyalty technology providers for their digital customer growth efforts. That same set of options is available to the provider community, and it will be interesting to see which firms take a step towards differentiation over the next year.