3. M&A Market Update
What was the biggest surprise of the last two years?
Surprise #1 Surprise #2
May 2008
12,829 200
#1 This Week
Mar 2009
6,547
2010 IAB Annual Leadership Meeting 3
4. M&A Market Update
For those who spent last year in a cave…
U.S. Media & Information M&A Activity
Total Value ($ billions)
Number f T
N b of Transactions ti
872
812
637 $104.4 615
542
456
$65.6
$60.6
301 $54.0
$29.9 $31.8
$16.1
2003 2004 2005 2006 2007 2008 2009
Source: JEGI transaction database. Includes media, information, marketing services & related technology sectors.
2010 IAB Annual Leadership Meeting 4
5. M&A Market Update
… M&A rebounded in late 2009, especially interactive
Interactive Sector M&A Activity 2009 Top Deals ($ mm)
Total Value ($ billions) Number of Transactions 1 Omniture $1,800
2 SPSS 1,200
214
178 3 Zappos 850
165
4 AdMob 750
129 $13.3
5 BankRate 571
$8.4 6 Razorfish 530
7 Web Reservations Int’l 458
$4.6
8 Playfish 400
$1.8
9 BuscaPé 374
1st Half 2nd Half 1st Half 2nd Half 10 Retail Convergence 350
2008 2008 2009 2009
Total $7,283
Source: JEGI transaction database. Includes interactive marketing services, online media and mobile.
2010 IAB Annual Leadership Meeting 5
6. M&A Market Update
Public valuations have only partially recovered to prior levels
Median Revenue Multiples Median EBITDA Multiples
Year End 2007
Multiples rebounded from end-2008 lows,
Year End 2008
Today but remain well short of 2007 levels
5.6x 33.1x
5.2x
3.2x 19.2x
2.9x 3.1x
14.8x 15.3x
13.5x 13.4x 12.2x
1.9x 2.1x
1.8x
1 8x
1.3x 6.9x 7.2x
Online Interactive Video Online Interactive Video
Media Marketing Infrastructure Media Marketing Infrastructure
Source: Capital IQ
2010 IAB Annual Leadership Meeting 6
7. M&A Market Update
Broad range of late-2009 interactive deals as M&A resumed
Tools Social E-commerce
Agency
Media
M di Games
G Search
S h Music
M i
Ad Delivery B2B
2010 IAB Annual Leadership Meeting 7
8. Agenda
I. M&A Market Update
II. What the Deals are Saying… And Not Saying
2010 IAB Annual Leadership Meeting 8
9. What the Deals are Saying… And Not Saying
1. Is “Above the Line” Brand Advertising in Decline?
2010 IAB Annual Leadership Meeting 9
10. Decline of Brand Advertising?
Traditional brand advertising vehicles have been hammered
Valuations Underperform Market Distressed Sales
20%
0%
-20%
S&P 500
-40% Yahoo!
NY Times Co.
-60% CBS
Gannett
G
-80% Media General
-100%
2007 2008 2009 2010
This is not just the economic cycle
Source: Yahoo! Finance
2010 IAB Annual Leadership Meeting 10
11. Decline of Brand Advertising?
Spending continues secular shift to promotional and interactive
During 2009, for the first time, consumer marketer spend on direct, promotional
and digital marketing exceeded total ad spending in traditional measured media
Consumer Advertising Spending 2003-2013
2003 2013 Net New Spending 2009-13
2009 13
Traditional Brand Media
$160 Growth
Growth Sectors
Sectors
$140 99%
$41 billion
Billions
$120 CAGR = 7.8%
$100
CAGR = (1.9%) Traditional
$80
Brand Media
< 1%
$60
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: VSS Communications Industry Forecast, 2009–2013 (August 2009). Excludes Cable.
Traditional Media: Newspapers, Broadcast Television, Radio and Consumer Magazines.
Growth Sectors: Consumer Promotion, Direct Mail, E-Mail and Internet Advertising.
2010 IAB Annual Leadership Meeting 11
12. Decline of Brand Advertising?
Branding and execution move But more efficient promotion
closer together for some requires better differentiation
… AKA branding
Example: Major Online Ad Net
Top 10 Clients in 2009
“Reports of my death are greatly exaggerated.”
– Mark Twain
2010 IAB Annual Leadership Meeting 12
13. What the Deals are Saying… And Not Saying
1. Is “Above the Line” Brand Advertising in Decline?
2. How Will Targeting Change Brand Advertising Online?
2 H T ti Ch B d Ad ti i O li ?
2010 IAB Annual Leadership Meeting 13
14. Rise of Targeting
Market shift to selling audience vs. sites
1. Sites
Sold on site-specific, channel
or run of network comps
Display Advertising Demand
2. Audience
Individually targeted by behavior (e.g.
in-market) plus context, geo, demos
Display Advertising 2009-2011: Illustrative View
$ billions
2009 2010 2011 CAGR
Sites $6.3 80% $6.5 75% $6.9 70% 4%
Audience $1.6 20% $2.2 25% $2.9 30% 36%
Total Display $7.9 100% $8.7 100% $9.8 100% 11%
Source: eMarketer (January 2010); Think Equity; JEGI estimates
2010 IAB Annual Leadership Meeting 14
15. Rise of Targeting
Massive proliferation of players in targeting audiences for brand ads
1. Agency Platforms 2.
2 Demand Side Platforms
4. Ad Exchanges and 3. Data Sources
5. Starbucks Publisher Side Platforms
2010 IAB Annual Leadership Meeting 15
16. Rise of Targeting
Surge of audience-related investments in
Targeting and Real Time Bidding (RTB) Platforms
Major Transactions/Financings Significant RTB Investment
$ millions x
x $95
(TK)
$30
(TK)
$52
Plus many DSPs ~ $140
Healthy revenue multiples Biddable volume scaling
Source: Capital IQ
2010 IAB Annual Leadership Meeting 16
17. Rise of Targeting
Coming land war for margin in the display ad delivery chain
Ad Delivery Players Ad Targeting Players
Publishers
CDNs
Display
Ad Serving
Rich Ads
Video Nets Publisher
margins get
Ad N t
Networks
k
squeezed
2010 IAB Annual Leadership Meeting 17
18. Rise of Targeting
Crowded value chain squeezes display margins
ILLUSTRATIVE
$5.00 cpm New pressure
($0.75)
($0 75)
New participants
($2.00)
($0.75) $1.00 cpm
($0.25)
($0.25)
Advertisers
Ad ti Agency
A Ad N t
Network
k Data
D t Ad E h
Exchange Ad S i /
Serving/ Publisher
P bli h
Provider Rich Media
How will current participants react?
Source: JEGI estimates
2010 IAB Annual Leadership Meeting 18
19. Rise of Targeting
Online ad network transactions went silent in 2009
2007-2008
2007 2008 Ad N t
Network D l
k Deals 2009-2010
2009 2010 Ad N t
Network D l
k Deals
M&A Mobile
PE Financing Web
2010 IAB Annual Leadership Meeting 19
20. Rise of Targeting
Clear divide between “old school” and newer audience-driven ad nets
Aggregate long tail imps/channels
long-tail vs.
vs Sell data-driven audiences
data driven
Revenue: $26 million Revenue: $42 million
Enterprise value: $200,000 Enterprise value: $110 mm
Audience-Driven Networks Scaling Well
Examples Collective Media Undertone
Acerno / Akamai Dotomi Yahoo APT
Audience Science Specific Media and others
Source: Capital IQ
2010 IAB Annual Leadership Meeting 20
21. Rise of Targeting
Data is a valuable service, but is it a scalable business model?
Online Offline
Big bets on pure data providers List Management – around for a while…
Fragmented, many list brokers
$30 million invested
Low margin after cost of acquiring data
$52 million invested
Premium publishers very sensitive to control
HEAD SCRATCHER
Why will online be different?
To scale as a business, will data need to be tied
Source: Capital IQ
to monetization – ad sales, DSP, transactions?
2010 IAB Annual Leadership Meeting 21
22. Rise of Targeting
Premium publishers losing a key advantage…
Publisher Display Value Proposition
1. Premium Context
Advertising has better
recall and impact
2. Premium Audience
Advertising reaches
target audience efficiently
“Now I can target my audience
in th
i other – cheaper – places.”
h l ”
2010 IAB Annual Leadership Meeting 22
23. Rise of Targeting
…So how much can they win back as data gatekeepers?
Publisher Data Value Proposition
1. Publishers originate premium user Will require different skills
Is cookie deletion – est at 10% per Win back some – but not
month – the publisher’s friend? nearly all – of lost margin
2.
2 Publishers monetize data So scale and new revenues
Resell targeting data will matter even more
Create own networks
Buy append data for own audience
Sell audience across “cloud”
2010 IAB Annual Leadership Meeting 23
24. What the Deals are Saying… And Not Saying
1. Is “Above the Line” Brand Advertising in Decline?
2. How Will Targeting Change Brand Advertising Online?
2 H T ti Ch B d Ad ti i O li ?
3. Are Video and Mobile the Next Big Things for Brand?
2010 IAB Annual Leadership Meeting 24
25. Online Video Growth
Wave of video deals – is online video finally scaling up?
Recent S l
R t Sales Recent Fi
R t Financings
i
$ millions $ millions
$110 $33
$20
$109
$20
$16
$16
$13
$11
$10
$10
Source: Capital IQ
2010 IAB Annual Leadership Meeting 25
26. Online Video Growth
Forecasts point to rapid growth for online video
U.S. Online Video Ad Spending Proliferation of Video Applications
Annual Amount ($ millions)
Consumer B2B
% of Total U.S. Online Ad Spending
12.4%
10.1%
7.8%
7 8%
$3,844
$
6.1%
$2,858
4.6%
$1,966
$1,440
$1,029
$1 029 Direct to living room
Direct-to-living room, Video as killer app
app,
direct-to-device embedded in many
“Stateful” portability more applications
2009 2010 2011 2012 2013 Customer choice on Enterprise, CRM, CMS,
bus ess ode
business model – healthcare, education,
pay or ads e-learning, government
Includes in-stream, in-banner and in-text ads
Source: eMarketer (December 2009)
2010 IAB Annual Leadership Meeting 26
27. Online Video Growth
If anything, video is likely to grow faster than forecasted
U.S. Video and Display Advertising - 2009
$ billions
In-Stream
Online video currently a
y
$0.5
$0 5 Video
$6.7
fraction of total TV and
Display & online spending
In-Page Video
One European ad net
reports 60% of video
buys now coming
$73.2
directly from TV budgets
Television
Tele ision
Shift in agency dynamic
is key
Source: VSS Communications Industry Forecast, 2009–2013 (August 2009) and eMarketer (December 2009).
In-Stream Video includes linear and non-linear advertising. Display & In-Page Video includes banner ads, rich media and
all online video except in-stream. Television includes national and local broadcast and subscription services.
2010 IAB Annual Leadership Meeting 27
28. Online Video Growth
Shift in agency dynamic is key
Video – Past Video – Soon
Scarce inventory, small buys
inventory Inventory and campaigns scaling
Inconsistent standards across Better standards (VAST, VPAID) and
publishers, providers more efficient workflow emerging
Very labor intensive to plan, Better (than TV) commissions
execute, bill and reconcile
Money loser for agency More attractive
2010 IAB Annual Leadership Meeting 28
29. Time for Mobile?
Is mobile the next big advertising medium for brands?
U.S.
U S Mobile Advertising Spending Mobile Deal Frenzy
$ millions Recent deals at rich valuations
$1,560
$
$750 mm
$1,140
$830 $275 mm
$593
$416
$211 million of disclosed VC in nine
more mobile ad nets
2009 2010 2011 2012 2013
Source: eMarketer (September 2009)
Just how rich are these deals?
$750 mm $1 billion value ≈
$275 mm entire 2012 mobile
ad revenue
2010 IAB Annual Leadership Meeting 29
30. Time for Mobile?
Mobile brand advertising is TBD.
Mobile promotion should be a great business
Mobile Head Scratcher
Big deals can be red herrings; mobile is
still “TBD” as a branding medium Examples:
Mobile has small screens and distracted,
task-oriented users
Better devices are out (iPhone, Android),
agency adoption will be slow
Self identification + intent + location =
BUT… help a consumer complete task Killer promotional vehicle
p
and is this a great promotional medium?
Source: eMarketer (September 2009)
2010 IAB Annual Leadership Meeting 30
31. What the Deals are Saying… And Not Saying
1. Is “Above the Line” Brand Advertising in Decline?
2. How
2 Ho Will Targeting Change Brand Advertising Online?
Ad ertising
3. Are Video and Mobile the Next Big Things for Brand?
4.
4 What About Local?
2010 IAB Annual Leadership Meeting 31
32. Role and Reach of Local
Pace of local deals picking up…
M&A Financing
Fi i IPO Fili
Filing
2010 IAB Annual Leadership Meeting 32
33. Role and Reach of Local
…But, is there any such thing as “local”?
Local Head S
Scratcher DNA of Winning Local Models
f
Do consumers think “local”, then “I Local applications – solving a problem
need X” … or just think “I need X”? Content,
Content audience and sales costs low –
What does this say for “Citysearch” preferably zero for at least part
vertically integrated models that rely Leveraging traditional media is one way,
on content aggregation and search? mobilizing the community is another
g y
2010 IAB Annual Leadership Meeting 33
34. Role and Reach of Local
Emerging models efficiently leverage partners and the crowd
Vertically I t
V ti ll Integrated M d l
t d Model Higher L
Hi h Leverage Models
M d l
1. Buying consumer traffic
COGS = 55% of revenue
2. 525 local sales reps (@$129k)
Sales & Marketing = 38% of revenue
3.
3 Low contribution margin
Only 7% remains to support
product and platform
Source: ReachLocal S-1. Based on nine months ending September 30, 2009.
2010 IAB Annual Leadership Meeting 34
35. Agenda
I. M&A Market Update
II. What the Deals are Saying… And Not Saying
III. Implications for M&A
2010 IAB Annual Leadership Meeting 35
36. Implications for M&A
The digital space is still a great place to be for creating value
2008-2009 M&A Multiples by Media Sector
Revenue Multiple
16.0x
EBITDA Multiple 15.1x
4.5x
12.5x
3.1x
8.6x
7.8x 7.6x 2.6x
7.1x 2.3x
1.2x
0.9x 1.0x
Consumer Business Newspapers Traditional Database & Consumer Interactive
Magazines Magazines Marketing Information Online Media Marketing
Services Services
Source: JEGI transaction database. Values for Newspaper sector reflect current public trading multiples due to lack of recent transactions.
2010 IAB Annual Leadership Meeting 36
37. Implications for M&A
M&A will be robust due to the rapid pace of innovation and adoption…
An Abbreviated History of Consumer Technology Adoption
Broadband
Speed of Consumer Adoption
In-Hand
Personal
Computer
Microwave
Popcorn
Cell Phone
Television
Wheel
Consumers adopting
disruptive technology
faster than ever before
Time
2010 IAB Annual Leadership Meeting 37
38. Implications for M&A
…combined with strong projected growth in online advertising…
U.S. Online Advertising by Format ($ billions)
Search Lead Generation
Display Video 2009-2013 CAGR:
Classifieds Email
Search 8.0%
$31.0 Display 5.3%
$28.3
$25.2
$25 2 Classifieds (1.6%)
(1 6%)
$22.4 $23.6
Lead Gen 6.9%
Video 39.0%
Email
E il 7.1%
7 1%
Total 8.5%
2009 2010 2011 2012 2013
Source: eMarketer (December 2009). Display includes banner ads, rich media and sponsorships.
2010 IAB Annual Leadership Meeting 38
39. Implications for M&A
…and the lack of an IPO exit window for most successful companies
U.S. Media & Technology IPO Activity
Completed
Cancelled/Withdrawn
Announced
29
8 6
42 40 45 15
14
14
7
2005 2006 2007 2008 2009
Source: Capital IQ. Includes media, online and software/services sectors.
2010 IAB Annual Leadership Meeting 39
40. Implications for M&A
Low macro growth + record cash = strategics must acquire to grow
Economic Growth Outlook
E i G th O tl k Corporate C h H ldi
C t Cash Holdings
S&P 500 Cash Holdings ($ billions)
Country/Region 2007 2008 2009E 2010E
$773
$665 $702
$616 $6 8
$648 $6 8
$648 $
$655
USA 2.0% 0.4% (2.7%) 1.5%
Euro Zone 2.7% 0.7% (4.2%) 0.3%
UK 2.6% 0.7% (4.4%) 0.9%
China 13.0% 9.0% 8.5% 9.0%
Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09
India 9.4% 7.3% 5.4% 6.4%
Advanced 2.7% 0.6% (3.4%) 1.3%
Cash holdings at select media/tech firms:
Cisco $39.6 Amazon $6.4
Emerging 8.3% 6.0% 1.7% 5.1%
Microsoft $33.4 Time Warner $4.8
World 5.2% 3.0% (1.1%) 3.1% Google $24.5 Yahoo! $3.3
pp
Apple $24.8 Verizon $2.5
Motorola $8.0 IAC $1.8
Source: International Monetary Fund (IMF) World Economic Outlook, October 2009 Source: Standard and Poor‘s
Excludes Financial, Utilities and Transportation sectors.
2010 IAB Annual Leadership Meeting 40
41. Implications for M&A
We don’t need Google and Microsoft to buy everything –
new acquirers will enter the brand advertising value chain
Marketing Analytics Application of rich user data
Expand from customer data to
Consumer Data customer acquisition
Cable & Entertainment Rich consumer experiences
Web Delivery Advertising as an application
Infrastructure Adding intelligence to networks
Major Agencies Build baseline functionality
Large Display Ad Nets Differentiate with data + tools
Performance Advertising Apply ROI discipline
Expect unexpected combinations
2010 IAB Annual Leadership Meeting 41
42. Implications for M&A
Private Equity was active in this sector, until they hit a bump…
Recession + Credit Meltdown
2010 IAB Annual Leadership Meeting 42
43. Implications for M&A
… and with $400 billion to invest, Private Equity will acquire scaled,
cash-flowing digital businesses in the brand advertising value chain
RADIO
CONSUMER MAGAZINES
BUSINESS MAGAZINES
B2B ONLINE MEDIA
DATABASE & INFORMATION
CONSUMER ONLINE MEDIA
INTERACTIVE MARKETING
1990s 2000 2004 2008 2012+
2010 IAB Annual Leadership Meeting 43
44. Implications for M&A
How will major media companies respond as advertising transforms?
Diversified media groups wrestling with
Secular shift to below-the-line media
Impact of targeting & data on online brand advertising
p g g g
Growth of video, mobile and local advertising & promotion models
Some already pushing into marketing services and online display value chain,
others are looking hard at ways to participate
2010 IAB Annual Leadership Meeting 44
45. Implications for M&A
And finally, we expect Google will buy Oregon and British Columbia…
… just to mess with Microsoft
2010 IAB Annual Leadership Meeting 45
46. Agenda
I. M&A Market Update
II.
II What th Deals
Wh t the D l are S i
Saying… A d N t S i
And Not Saying
III. Implications for M&A
IV. About the Jordan, Edmiston Group
2010 IAB Annual Leadership Meeting 46
47. About JEGI
The Jordan, Edmiston Group, Inc. (“JEGI”)
Leading I d
L di Independent Investment B k
d tI t t Bank
Exclusively Serving the Media, Information and Technology Sectors
Founded in 1987, over 500 transactions completed
Sell-side M&A, divestitures, financings, valuations and strategic advisory
Broad l ti
B d relationships across major media, t h l
hi j di technology, d t and marketing
data d k ti
acquirers as well as financial buyers
Deep domain expertise plus disciplined transaction processes
Very high transaction completion rate
2010 IAB Annual Leadership Meeting 47
49. Diverse Buyers & Premium Valuations
Seller Sector Buyer
1. Acerno Behavioral targeting
g g Akamai
2. Circles Customer care Sodexo
3. Congressional Qterly Legislative data Economist Group
4. Cymfony
4 C f Social
S i l media analytics
di l ti TNS
5. Gorilla Nation Brand advertising Great Hill Partners
6. Klipmart
p Online video advertising
g DoubleClick
7. KnowledgeStorm Professional IT search TechTarget
8. m:metrics Mobile measurement comScore
9. Moreover
9 M Real ti
R l time search
h VeriSign
V iSi
10. PointRoll Rich media advertising Gannett
Revenue / EBITDA M lti l
R Multiples
High: 7.8x / ∞ x Mean: 4.4x / 22.3x
2010 IAB Annual Leadership Meeting 49
50. 2009/2010 YTD Transactions
In each transaction JEGI’s client is mentioned first.
2010 IAB Annual Leadership Meeting 50
51. 2008 Transactions
In each transaction JEGI’s client is mentioned first.
2010 IAB Annual Leadership Meeting 51
52. 2007 Transactions
In each transaction JEGI’s client is mentioned first.
2010 IAB Annual Leadership Meeting 52
53. Download this presentation or sign up to
receive JEGI’s Client Briefing newsletter
www.jegi.com
jeg co
Tolman Geffs
tolmang@jegi.com
2010 IAB Annual Leadership Meeting 53