S-1 Offers Clues to the EverCommerce Recipe for Success

We’ve been wondering if, and when, the EverCommerce machine would open the kimono and let us see into its business. Well, that time has arrived. EverCommerce has filed the necessary papers to “go public” via an IPO valued at almost $3.5 billion.

In the “local” space this valuation puts EverCommerce in the same league as YELP ($3.0 billion). It also puts it well ahead of the YEXT ($1.85 billion) and THRYV ($1.2 billion). Evercommerce remains well behind global players WIX ($16.8B) and GODADDY ($14.8B). 

EverCommerce is the outgrowth of a deliberate strategy that Providence Strategic Growth — a Providence Equity Partners affiliate — put in place when it put $115 million into PaySimple back in 2016. At the time, PaySimple had 17,000 companies on its platform. During the last five years, the company has been on one of the most aggressive acquisition efforts in the local space. With just under a hundred employees in 2016, the company now has 1,750 employees.

Familiar Brands

Under the EverCommerce umbrella brand, the company bought some well-known local companies such as CustomerLobby (Ted Paff) and MarketHardware (Brian Kraff) and many more niche and lesser know brands.

These would be brands such as BrighterVision,  which it acquired at the end of May. Also Timely, an appointment application located in New Zealand. Others include Invoice Simple, an invoice application located in Vancouver, BC; and ProfitRhino, a flat-fee pricing application located in New York. Another is Listen360, a customer engagement application located in Atlanta.

The company has completed 49 individual acquisitions since 2016. One aspect of their business that certainly seems to have “scaled” is the corporate development team. 

Acquisition Binge

The acquisition “binge” EverCommerce has been on has added considerably to its customer base. According to the S-1 filing, acquisitions and organic growth has increased their customer count from about 110,000 at the end of 2018 to over 500,000 at the end of 2020 (over 350% growth over the two years). That is a very impressive growth rate, even if all of that growth could be attributed to acquisitions. 

LOCALOGY ENGAGE 19: Market Outlook – Rollups and Exits

EverCommerce has estimated its TAM on the order of 31 million businesses and $520 billion in the U.S. On a global basis, the figures are 400 million and $1.3 trillion. As we have written previously, we believe the 31 million TAM in the U.S. is a generous sizing of the SMB market. Among those 31 million are millions of solo-practitioners, perhaps as many as 15 million.

We do not believe that segment of the market is looking to spend hard currency on application software much beyond what they spend on G Suite or Microsoft Office.

That leads us to another curious question. Even if the TAM is 31 million, the $520 billion spend would mean that each of the 31 million businesses is estimated to spend on average, $16,775 per year at some future point in time. Of course, a dental practice that is doing a couple of million dollars a year will spend that kind of money on tools, applications, and solutions. But a solo personal trainer will not. 

First Look Under the Hood

As they have cobbled together a vast number of companies, the S-1 filing is the first time we’ve seen how they’re rationalizing their numerous acquisitions and brands. To that end, here’s how they describe the markets they operate in. For the home services sector, its uber brand is EverPro, for health services, it is EverHealth and for fitness and wellness, it is EverWell. The chart below from the S-1 outlines what types of small businesses are in each segment. 

Our Verticals Micro-vertical Examples
Home Services HVAC/plumbing, electrical professionals, remodeling and home improvement contractors, window and door replacement specialties, security and alarm installation and monitoring businesses
Health Services Specialty private medical practices, mental health therapists, chronic care specialists, ambulatory and EMT services, specialty branches of hospital systems
Fitness & Wellness Services Chain and franchise gyms, full-service health clubs, boutique studios, personal trainers, dance and instructional schools, salons and spas, massage therapists
Other Non-profits, veterinary care facilities, small accounting and tax firms, educational facilities, social services, pet/veterinary care, professional services, consumer services
Logical Buckets

These are pretty logical buckets or segments, though we surprised they did not build a unique bucket for professional services.

For each of the segments, they’re offering a similar set of solutions and applications. They lead with what they call their verticalized “Business Management Software” – or the center of the experience for the SMB customer. They indicate that most customers come on board via this initial entry point. However, many of the customers have come about via acquisitions and are not likely to have started their EverCommerce journey via this door.

For the segments, EverCommerce has taken a horizontal approach. They offer Billing and Payment solutions, Customer Engagement applications, and Marketing Technology solutions. We are not sure what the difference between an “application” and a “solution” is. 

Growth in Martech

So how are they doing? From the S-1, we know that their subscription and transaction revenue was $232 million. Marketing technology solutions drove another $86 million in top-line revenue while “other” drove an additional $18 million. Taken together, the company had almost $340 million in topline revenue, and that number grew by 40% from 2019 to 2020.

The big revenue driver in terms of YoY was marketing technology solutions. These grew 130% during the same time while subscriptions and transactions revenue grew 23% YoY. It reveals a considerable shift in the mix of revenue. The table below shows the relative share of revenue in 2019 and 2020. 

EverCommerce defines its marketing technology solutions to include: custom website design, development and hosting, responsive web design, marketing campaign design and management, search engine optimization (SEO), paid search and display advertising, social media and blog automation, call tracking, review monitoring, and marketplace lead generation, among others. 

Recurring or Reoccurring?

It is interesting to note that in the filing the company is deliberate to use the words “recurring” to describe their subscription services and the word “re-occuring” to describe their marketing campaigns and lead generation programs.

And though we can’t examine their revenues in detail, the share shift would suggest that in 2020 proportionally more revenues were “re-occurring”. That’s an important distinction since “re-occurring” describes something that can go off and on. Recurring revenues, on the other hand, are ongoing.

So that’s an interesting trend and one we wonder about. As we’ve written about in these pages before many companies in the local space are aggressively pursuing subscription (SaaS) and transaction revenues (a slice of each transaction e.g. Shopify). For instance, the trend we’ve written about before in these pages at a company like Thryv is toward subscription and transactions revenue “recurring” and away from marketing services “re-occurring”. 

Customer Growth

The S-1 also lays out an interesting timeline. Here are the highlights from the timeline that we found interesting.

2016 – Providence $115 cash infusion and 15,000 customers 

2017 – Centralization of core operations and 35,000 customers

2018 – Expanded into key verticals and surpassed 110,000 customers with 69,000 via acquisitions 

2019 – Silver Lake investment. Also surpassed 150,000 customers with 10,000 coming via acquisitions

2020 – Continued investment in verticals and centralization of core operations and surpassed 500,000 customers with 261,000 coming via acquisitions 

What’s interesting is that if you do the simple math, Evercommerce’s 2019 customer count was 150,000. Its 2020 customer count was 500,000, with 261,000 coming via acquisitions. This means the company organically added “at least” 89,000 customers.

We say “at least” because we can be sure that there was “churn” among the 150,000 customers the company had at the end of 2019. Adding “at least” 89,000 small business customers in a “pandemic” economy is impressive. 

Key Advantages

Here’s how we synthesize the company’s stated advantages moving forward. 

Vertical orientation. We have believed for a long time that the plumber has an entirely different orientation than a dentist. Here’s what the company says. “Our vertical and micro-vertical approach enables us to provide tailored solutions featuring critical vertical-specific functionality that better serves our customers when compared to industry-agnostic solutions offered by other businesses.”

End-to-end solutions. As small businesses continue to adopt technology, they will need integrated and easy-to-use solutions. EverCommerce recognizes this and says, “simplifying their operations and providing a frictionless experience when compared to disjointed point solutions offered by other software businesses.” 

SaaS-based solutions. In our mind, this is more about the company’s revenue predictability than a market need since small businesses don’t really care whether they buy a “recurring” or “reoccurring” service. 

Mobile capabilities. This is definitely a key push for the company and aligns with how we believe small businesses need to engage and interact with their end customers. 

Exceptional digital experiences. Small businesses must focus on delivering compelling customer experiences going forward. EverCommerce says, “Our customers’ use of our offerings allows them to deliver exceptional digital experiences to consumers across multiple channels, enhancing engagement, retention, and loyalty.”

Cost- and resource-efficient. Small businesses are often reluctant to spend money on technology. EverCommerce positions it this way. “Our solutions are affordable and easy to implement, and our customers benefit from our strong customer service capabilities.“

Customer-driven innovation. This is a particularly important point. EverCommerce can garner consider insight from the behavior its 500,000 customers exhibit in order to drive their product and innovation forward. 

Rationalizing Acquisitions

When company CMO Sarah Jordan spoke at Localogy’s 2019 event outside Washington D.C. just about two years ago, she didn’t suggest the company was working aggressively to “rationalize” its nearly four dozen acquisitions. This prospectus suggests they’ve been hard at work over the last 24 months doing just that. Whenever we get a chance to look underneath the hood at company’s that are helping small businesses leverage technology to run their operations, we learn a ton.

While we’re impressed with the company’s 500,000 plus customer base and the potential that holds for cross-selling and revenue expansion, we do wonder if the company’s estimate of the TAM – both in terms of the number of SMBs and revenue potential – is overly optimistic. It will certainly be interesting to listen in on future quarterly investor calls to see how the company is realizing its aspirations. We are certainly excited to watch how the team – many of whom we know well – navigates both the choppy waters and the opportunities going public creates. 

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