In a significant move to bolster its global presence, SaaS firm Capillary Technologies will acquire SessionM, Mastercard’s customer loyalty and rewards business. The all-cash deal, valued at $20 million, is a strategic step to enhance its footprint in the North American and Latin American markets. This acquisition is poised to expand Capillary's service offerings and client portfolio in the competitive loyalty technology sector.
Strategic Expansion in North America
The primary driver for this acquisition is to strengthen Capillary's position in the competitive North American and Latin American loyalty markets. SessionM brings a valuable portfolio of over 40 enterprise customers, including five Fortune 500 companies and major brands in the airline and QSR industries. This expansion aligns with Capillary's objective of pursuing inorganic growth to capture a larger share of the estimated $8 billion regional market.
This transaction is Capillary's fifth acquisition in five years, underscoring a consistent strategy of expansion through targeted purchases. The company entered the US market in 2021 by acquiring Persuade and later fortified its presence with the purchase of Brierley+Partners. The addition of SessionM further solidifies Capillary's standing as a formidable competitor in the global customer engagement space.
Financial Implications and Synergies
Financially, the $20 million deal is expected to deliver substantial returns, adding over $35 million in annual recurring revenue (ARR) to Capillary's current base. This significant boost is projected to help the company surpass the Rs 1,000 crore revenue milestone in the upcoming fiscal year. The transaction, which includes SessionM's Czech subsidiary, is anticipated to be finalized within the next six months.
Although SessionM operated at a loss under Mastercard, Capillary's leadership is confident in its ability to improve the business's financial health. The company aims to operate SessionM at a near breakeven point within the first year of the acquisition. This turnaround strategy is based on Capillary's track record of successfully integrating past acquisitions and optimizing their profitability.
The integration of SessionM is expected to create significant operational synergies and enhance Capillary’s suite of loyalty solutions. By migrating SessionM's clients to its AI-native platform, Capillary anticipates improving customer gross margins from approximately 30% to nearly 65%. This margin expansion is central to the acquisition's long-term value proposition, with a projected payback period of four to five years.
Market Context and Company Profile
Founded in 2008, Capillary Technologies provides AI-powered customer engagement tools for brands across 47 countries. SessionM, established in 2011 and acquired by Mastercard in 2019, operates a cloud-based loyalty and engagement platform. As part of the deal, a specialized team from SessionM will join Capillary, ensuring continuity of service and expertise for clients.
The acquisition takes place within a highly evolved North American loyalty market, which Capillary's CEO described as a 'red ocean.' By combining its modern technology with SessionM's established enterprise client base, Capillary is better positioned to navigate this competitive landscape. The move also highlights an industry trend where companies with older tech stacks are being acquired by more agile, AI-focused platforms.
Ultimately, Capillary Technologies' acquisition of SessionM is a calculated investment to accelerate its growth and market leadership. The deal significantly enhances the company's revenue, client base, and competitive positioning, particularly in the lucrative North American market. The successful integration of SessionM's operations will be pivotal in realizing the full financial and strategic potential of this expansion.