(by Tolman Geffs, The Jordan, Edmiston Group, Oct 2005): There has been a rush of press and pundit attention to major traditional media groups buying interactive companies. But the numbers behind the headlines are even more compelling.
Through the first three quarters of this year, about $10.6 billion in deals to buy online content and services companies were announced, as tracked by the JEGI Transaction Database (the chart with breakdown here). This pace is more than double the $4.4 billion in the same period in 2004.
Last year, about three quarters of the deals were “endemic” – interactive companies buying other interactive companies – like AOL/Ad.com or DoubleClick/Performics. But this year, over 60% of the volume has been driven by non-endemic buyers – traditional media companies, major marketing services groups, and private equity shops. These new players spent over $6.4 billion acquiring interactive companies, doubling their share and driving most of the growth of the M&A market.
More in the extended entry….
Leading the charge are the diversified media companies – headline grabbers like News Corp’s sweep or Gannett/PointRoll. But B2B media is also getting more active, such as United Business Media’s acquisitions of Light Reading (telephony sites) and TechOnline (engineering). For those you scoring at home, B2B media is less sexy but typically higher profit margins that consumer and entertainment. Traditional marketing services groups are also jumping in, like Experian’s string of acquisitions – LowerMyBills, AffiliateFuel, and others.
But maybe most encouraging is Private Equity groups are plowing into interactive companies, for the simple reason that these will all be for sale again, since PE typically looks to hold for only a few years. Nearly every PE group I know is spending time with online businesses, and some major deals are getting done, like the acquisition of webloyalty.com by General Atlantic, Hellman & Friedman’s buyout of DoubleClick, and General Atlantic and Quadrangle teaming up to buy Dice – over one billion dollars of new money into those three alone.
*****
A Hat Trick — that’s what they call it in hockey when a player scores three goals in a game. The online industry has seen rapid fire sales of the major interactive advertising trade shows — Ad:Tech, Search Engine Strategies, and iMedia. (JEGI represented the sellers in all three, and the prices and competitive interest were very healthy).
Looking forward, there will be more M&A action in advertising networks – whether the display ad / rep model like Tribal Fusion, or performance-based affiliate networks like QuinStreet. While I don’t know anything about those two, plenty of their competitors are either actively selling, approaching it, or at least considering an offer. With the continued flow of dollars from Madison Ave into online, that money had to find a place to go. Prime display ad inventory on the major sites and portals is not growing as rapidly, so services that effectively aggregate smaller sites and ad inventory are much in demand, both as ad vendors and as acquisitions.
Tolman Geffs is a managing director with The Jordan Edmiston Group (JEGI), a New York-based investment bank founded in 1987 and focused on the media and information industries. Tolman was previously CEO of Internet Broadcasting Systems (IBS), the largest online television network. You should assume that Tolman and his firm have or will do business with companies mentioned in this column.
Comments have been disabled for this post