Return Path and Habeas Deliver on a Merger

New York-based provider of email deliverability services Return Path recently announced plans to acquire its Mountain View, Calif.-based rival Habeas, for undisclosed terms. By the end of this week, the two companies hope to officially finalize the transaction. Habeas brings aboard its 40 employees and approximately 450 customers to join Return Path’s 150 employees and 1,500 customers. Perhaps the most exciting aspect of the acquisition, says Des Cahill, chief executive officer of Habeas, is that it will provide “the critical size to innovate and force change -- to make things happen within the industry.”
 
Habeas began looking at the possibility of an acquisition around May of 2008, according to Cahill. It wasn't long before the company “got serious” about this corporate initiative, hiring investment-banking firm William Blair & Co. Culturally, the reasons for joining with Return Path, Cahill says, were obvious:

• Return Path had staked out a similar mission in advocating email as a strong communication channel and promoting best practices; and
• the integrity and support Return Path has for its staff and team.

“Once you reach a certain size in terms of number of customers and number of employees, it’s pretty common to be constantly having discussions about potentially acquiring people or being acquired, or taking on additional funds,” Cahill explains. When a company reaches that size, he adds, only then will it have the adequate resources to carry out the “mission of saving email.” While Habeas has not engaged in any acquisitions itself, David Daniels, vice president and research director at JupiterResearch, notes that Return Path has had a long history of acquisitions -- including  digital marketing solutions provider NetCreations in 2004 and whitelisting service Bonded Sender in 2005 -- which suggests that the integration of Habeas should run smoothly.

Even so, email reputation and deliverability services make up only 10 percent of the total email marketing space (that’s roughly $200 million out of a $2 billion dollar industry). Competition, Daniels notes, comes down to only a handful of companies. Nevertheless, according to George Bilbrey, general manager of delivery assurance at Return Path, the necessity for this type of service exists, and is rapidly growing, as one in five marketing messages doesn’t make it into the inbox.

Daniels certainly sees this acquisition as a step forward in advancing reputation management and email deliverability. “Maintaining marketer reputation is vital to ensuring delivery, and acquisitions such as this should bring further attention to the implementation of best practices.” Daniels adds that the acquisition “also confirms JupiterResearch data that the industry is still challenged by email delivery, which should further grow the reputation management and delivery services marketplace.” He goes on to quote an August 2008 JupiterResearch executive survey which reveals that 34 percent of marketers find email delivery among their top challenges.

Although the companies considered themselves what Bilbrey calls “respectful competitors,” Cahill admits that there were very few overlaps in terms of customers -- he estimates about 50 -- but even so, there was little service overlap for those customers. The acquisition will hopefully bring nothing but added benefit to customers on either side. As the acquisition moves ahead, Return Path says it will retain the full Habeas team -- something that should, in theory, smooth the transition for existing Habeas customers. (For example, they'll continue to have the same account managers.)

The Habeas name, however, will be dropped. The company becomes fully incorporated under the Return Path brand. For Cahill, at least, this won’t be too big of a loss: “There are still a number of people who associate [Habeas] with the original business model around haikus, still a fair number of people who mispronounce or misspell it, or associate it with habeas corpus.”

For Return Path, the acquisition gives the East Coast company presence in the Bay Area, where many of its customers currently reside. Moreover, Habeas brings aboard valuable data and resources that increase Return Path’s footprint in the industry, particularly with the addition of Habeas’ whitelisting service SafeList, which complements Return Path’s own Sender Score Certified.

Financial details haven’t been revealed but Cahill instead emphasizes the importance of what he sees as the “big picture”: “Here’s an important area of email -- email reputation -- and with two leaders combining, it’s going to be a big company that’s going to be around for a long time.” The acquisition, he adds, “is going to be helping to continue to make email a safe place for legitimate companies to communicate with their customers.”

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