Adobe Systems has enhanced its image as slickly as if it had used its Photoshop editing software. The switch from ageing tech group to sprightly software leader via smart purchases, a move to the cloud and a subscriptions-based service has been rewarded.

The shares are up 465 per cent in the past five years. This seems like a good time to make a big acquisition.

Adobe is reportedly interested in Marketo, a privately held company that makes cloud-based marketing software. Reasonable enough.

The two companies already compete for customers but Adobe’s automation capabilities do not match Marketo’s. The acquisition would improve its chances of standing up to rivals such as Oracle and Salesforce.

Adobe’s digital experience division, including marketing, is growing better than expected — up 18 per cent in the last quarter to $586m. The more products it can offer, the better chance it has to sign up larger companies.

Buying Marketo from its private equity owner could require a stiff premium. In May, Adobe bought Magento, an ecommerce platform, from Permira for $1.7bn — 11 times more than the private equity firm paid three years earlier. Vista Equity Partners bought Marketo in 2016 for $1.8bn. Adobe has $3bn in cash on its balance sheet waiting to be spent.

The switch from peddling licences to selling subscriptions is tricky. A drip feed of recurring revenue compares unfavourably with lump sum sales at first. Adobe has passed that point.

Revenue reached a quarterly record of $2.2bn in the three months ending on June 1 — up more than 24 per cent year on year. Competitors have failed to beat Adobe’s applications.

Adobe’s rapid stock price rise means that it trades at a high 37 times forecast earnings. But profit margins exceed those of Salesforce and Oracle.

Acquisitions should support further growth. There is no reason to expect that its winning streak will be broken in the next few quarters.

Lex recommends the FT’s Due Diligence newsletter, a curated briefing on the world of mergers and acquisitions. Sign up at ft.com/newsletters.

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