Monthly Column: Digital Deal Notes: Jan 2006

(by Tolman Geffs, The Jordan, Edmiston Group) Interactive M&A in 2005 totaled 160 deals worth an aggregate $15.7 billion, double the $7.7 billion value for 111 transactions in 2004. The totals include online media as well as related services and technology, as tracked by JEGI from public and confidential sources, and represent the highest levels since the 2000 frenzy.

Two major shifts in the market drove this expansion, on top of the obvious catalysts like “gee, online advertising works pretty well”. To have an active market you need a lot of buyers, and the buyers came from two sources that I’ve written about before. First is an expansion of interest from diversified media and marketing companies, along with private equity, who together replaced larger interactive companies like IAC and ValueClick as the most active acquirers of online content and services businesses. These traditional companies need new growth to mitigate the impact of the web on their core assets (newspaper, TV, business magazines and databases), and they are finding it online. This will not change in 2006. More after the jump


The second factor is the resurgence of interest in buying online content, after a long period in which buyers shied away from pure online audience & advertising businesses. For most of 2004 and early 2005, the focus was on investing in and buying enterprises that monetize audience – ad networks, search, rich media, lead generation, video, aggregation, and so on. Buyers were not yet convinced that classic publishing – build an audience, sell ads against it, rinse, repeat – could make real money online, such that ad revenue exceeds the cost of large scale audience acquisition. Now they are convinced – and acquisitions of content and audience assets are taking off.

Lots of press speculation on are we in a replay of the 2000-era boom? I honestly don’t think so. The underlying business economics are sound, and – more importantly – buyers are generally acting with caution and discipline. If you want to sell your business for a decent price, you absolutely cannot miss your numbers during the typically 4-6 month process or buyers pull back hard. Even with an awful lot of private equity money chasing deals, we are not seeing – with a few exceptions – the barrel-stacking silliness typical of a frothy market. (Barrel-stacking is an old investment term my Dad taught me, meaning buying stocks or companies solely on the premise that the next buyer will pay more.)

Looking into 2006, I can’t resist making a few predictions. I’ll bet that online M&A levels will grow slightly from 2005, excluding monster outliers. And here are four areas you can expect to see a lot of very interesting deals

1.Original online content. Got audience? You’ll be getting some calls (please return mine) as publishers find it cheaper to buy someone else’s audience than to build from scratch.

2.Lead generation. Lead gen works well, and is expanding past mortgages and online college degrees to take a broader chunk of marketing dollars. Others will follow the example of Experian (buying lots of consumer lead gen companies, most recently Price Grabber) and Tech Target (to whom we sold Bitpipe in late ’04, and which tried unsuccessfully to sell itself in ’05).

3.Video, video, video. Video will become the ubiquitous experience on the web and on other electronic platforms like mobile and IM. By “ubiquitous” I mean it will be like color in a magazine – on almost every page, to varying degrees as needed, and noticeable mainly by its absence.

4.Google. Sergey & Larry will buy the state of Oregon, just to mess with Microsoft. And lots of other interesting technologies and engineering teams as they broaden their revenue base.

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