Magazine article Information Today

Online Media & Marketing Services M&A

Magazine article Information Today

Online Media & Marketing Services M&A

Article excerpt

"M&A action in the media sector has been ablaze," according to Maria Bartiromo, the business news anchor on CNBC's Closing Bell. M&A in the online media and marketing services sectors set new record highs in the first half of 2007, with 238 transactions announced totaling $32 billion in deal value. This first-half tally across online media and marketing services sectors exceeded total 2006 deal value by 20 percent.

The explosion in online media and marketing services M&A in the first half of 2007 was led by a number of blockbuster transactions, as well as a strong flow of middle-market transactions. Major announcements in 2Q '07 included Microsoft's acquisition of aQuantive for $5.7 billion, Google's acquisition of DoubleClick for $3.1 billion, and WPP's acquisition of 24/7 Real Media for $649 million. In all, the top 10 online media and marketing services transactions in the first half of 2007 totaled $25 billion, accounting for 77 percent of total deal value for these sectors.

However, many of the most interesting deals fell below the "headline-grabbing" levels, as major diversified media companies continue to reshape core models through acquisitions and as well-funded investors pursue new sources of growth. The Jordan, Edmiston Group, Inc. (JEGI), the New York-based investment banking firm, assisted with several such transactions in 2Q, including arranging a $50 million investment for Gorilla Nation Media, the largest online advertising rep sales firm, from Great Hill Partners; the sale of Healia, an innovative health search engine, to Meredith Corp.; and the sale of TechnologyGuide.com, a provider of Internet content sites for mobile technology products, to TechTarget.

Strong M&A Financing Environment

The lending climate for the media and information industries continues to be very positive, and lending multiples have strengthened over the past 6 months. Private equity firms continue to actively pursue acquisitions, especially as add-on opportunities for their existing portfolio companies. Because lenders are willing to fund at higher multiples than even 6 months ago, PE platform companies find they can complete larger acquisitions with minimal, if any, new equity investment. This cyclical liquidity--while it lasts--is driving much of the middle-market M&A.

Online Advertising Growing Strongly

A much longer-legged factor in the strong increase in online media M&A is the extraordinary growth in online media advertising. According to the Interactive Advertising Bureau (IAB), Internet advertising revenues for 2006 were $16.9 billion, up 35 percent over the previous year's $12.5 billion. Revenue for 1Q '07 totaled $4.9 billion, a 26 percent increase over 1Q '06 levels, tracking to another record year.

Leading this charge is the strong growth of online video ad revenue, which is projected to grow at an annual rate of 60-plus percent through 2010 to nearly $3 billion, from less than $1 billion today, according to eMarketer. By 2010, online video advertising is expected to capture 12 percent of total online ad revenue, as compared to only 3 percent in 2006.

But the story behind the story is the pressing need for greater efficiency in the delivery of digital advertising. Ad agency execs will tell you that they can plan and buy TV for a few percentage points, but online video campaigns can cost 15 percent of the media budget once labor for managing and reconciling the campaign is factored in. …

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