Internet and Digital Media M&A Update - November 2012

We noted a number of recent M&A and financing announcements in the Internet and Digital Media industry sectors over the past few months.

 

Most notably, the following transactions were announced:

 

• Priceline to acquire Kayak for $40/share in cash & stock, or $1.8 billion (Nov 8, 2012).
• Eyeing An IPO, marketing software giant HubSpot raises $35M For international growth, M&A and more from Altimeter Capital, Cross Creek Capital, and previous investors. It has raised a total of $100 million since its founding in 2006 (Nov 5, 2012).
• Disney acquires Lucas Film for $4.05 billion (Oct 30, 2012).
• Yahoo! acquires Stamped for an undisclosed amount (Oct 26, 2012).
• Yelp pays $50 million to acquire its European rival, Qype (Oct 24, 2012).
• Microsoft invests $300 million in Nook Media (Oct 5, 2012).
• Google acquires Frommers, Viewdle, Snapseed, Nik Software, Wildfire Interactive and VirusTotal.com (Aug - Nov 2012).
• Facebook acquires Threadsy, a social aggregator and maker of social marketing tool Swaylo (Aug 24, 2012).
• IAC acquires About.com for $300 million from the New York Times (Aug 26, 2012).

 

As the end of the U.S. election clears the path to economic certainty again, we believe companies will pick up the M&A pace as large amounts of cash sits idol on balance sheets.

 

We expect 2013 to show an increase in the amount and number of M&A and IPO transactions announced in the Internet and Digital Media industry sectors.

About Generation Equity Advisors

Generation Equity Advisors is an independent investment banking and M&A advisory firm focused on the technology and digital media industry sectors exclusively. Our expertise is providing mergers and acquisition advisory services to companies, entrepreneurs, private equity firms and shareholders globally. We started in 2009 with the idea to focus on specific industry sectors and to avoid any "large firm" conflicts. We have successfully completed several M&A transactions for our clients and continue to grow into a leading global technology and digital media focused M&A advisory and investment banking firm.

Our professionals have completed over $20 billion in transactions and are highly experienced in Mergers and Acquisitions, Corporate Finance and Capital Markets. All professionals have worked with large tier-one and middle-market investment banking firms and have many years of experience managing all phases of the M&A transaction process from start to finish.

For More Info:  Generation Equity Advisors

Q2 2012 - Private Equity Investments and Exits Decrease

The latest research from PitchBook - Merrill Datasite shows that PE firms have reported a continuing decrease in both their investments and exits as of Q2 2012.

• Deal volume fell by 17% in 2Q 2012 compared to the previous quarter and has been in a steady downward trend for more than a year.
• The $51 billion invested during 2Q was the lowest for any individual quarter since 2009.
• PE firms have demonstrated an increased focus on B2B, IT, and Healthcare investing.
• Both exit volume and capital exited plummeted in 2Q 2012, declining by 16% and 42% respectively, compared to the previous quarter.

The amount of capital invested in Q2 decreased by 8% from the previous quarter but the more drastic decline came in deal volume, which fell 17%. When comparing Q2 2012 to the same period in 2011, the results are even worse: a decline of 39% in deal volume and 37% in capital invested. In fact, the $51 billion invested during Q2 was the lowest level for any individual quarter since the post-bubble year of 2009, and with just 303 deals, it was the worst quarter by
volume since before 2006.

Deal-making was fairly consistent throughout 2011, but levels have slipped through the first half of 2012. Compared to Q2 2010, deal flow was down 48% and capital invested declined 58% in Q2 2012. Halfway through the year, PE firms are on track to close just 1,332 deals in 2012, which would be the lowest level since 2003.

“For all of the headwinds facing PE and the economy at large, two irrefutable forces will continue to compel PE firms to action: the more than $430 billion in dry powder reserves and the more than 6,300 companies currently in portfolios,” says Richard A. Martin, Jr., Senior Director at Merrill DataSite. “Regardless of the macroeconomic environment, PE firms will have to act in order to exit longstanding investments and deploy capital before their investing window closes.”

In terms of capital, exit activity has been a mixed bag so far in 2012. The Energy industry has emerged as a definitive bright spot for PE exit activity. In the first half of 2012, PE firms sold 24 Energy investments for a total of $28.2 billion, which is already more than any year on record. Exit activity in Information Technology has been strong as well; firms have already realized more than $14 billion in exited investments in 2012, nearly surpassing the 2011 total. Furthermore, PE firms have already exited more Financial Services companies in 2012 than in all of 2011. On the other hand, 2012 is shaping up to be one of the slowest years in recent memory for both B2B and B2C. Halfway through the year, total exited capital in both of the industries is approximately one quarter of the amount reached in 2011.

To access the complete report (free), please go to the "Research" section at: Generation Equity Advisors

Generation Equity Advisors, LLC

Q1 2012 - Software M&A Update

Q1 2012 – Software M&A Update

We noted approximately 420 M&A transactions announced in the software sector for Q1 2012 for a combined total of $74.6 billion.

The median exit EV/Revenue multiple inched up to 1.9x TTM revenue in Q1 2012 from 1.8x the previous quarter. While the exit multiple is virtually the same as the software industry’s ten year average of 2.0x TTM revenue, it does suggest that buyers are hesitant to overpay for a target, most likely because of ongoing concerns about IT spending and the economy. In the first quarter, 9.4% of M&A deals with listed exit multiples had a 5.0x or greater EV/Revenue multiple.

The median EV/EBITDA multiple for publicly traded software company exits was 12.2x TTM EBITDA in Q1 2012 as compared to 13.4x in the previous quarter.

Size is a factor in valuations.

 

The median average deal size was $43.4 million for Q1 2012.

 

Another key driver of exit multiples is size – of both buyer and seller. As testament, in Q1 2012, buyers with TTM revenue greater than $200 million paid a median EV/Revenue multiple of 3.0x, while buyers with TTM revenue less than $200 million paid only 1.3x TTM revenue. Equally noteworthy - sellers with less than $20 million TTM revenue received a median EV/Revenue multiple of 4.6x from buyers with $200 million of revenue or more, while sellers with greater than $20 million TTM revenue were paid a median exit valuation of 2.9x.

Vertical (industry specific) software is a key focus in Q1 2012.

In Q1 2012, providers of vertical software accounted for 32% of all software M&A, confirming vertical providers remain attractive acquisition targets primarily because of their predictable recurring revenue, deep domain expertise, and highly defensible market positions. The most active verticals were Healthcare and Financial Services, each capturing 18% of total vertical M&A volume.

Software as a Service (SaaS) M&A Deal Volume and Valuations

The number of SaaS M&A transactions continues to climb. In Q1 2012, 65 SaaS companies were acquired, a 61% increase from 39 transactions in Q1 2011.  SaaS company acquisitions accounted for 16.2% of all software industry acquisitions in 1Q12, compared to only 2.3% of all software M&A deals just two years ago.

SaaS exit valuations are also climbing. The median EV/Revenue exit multiple for SaaS providers in the first quarter was 3.9x, up 54% from the previous quarter, and 15% from the previous year.  Q1 2012’s median exit valuation is more than double the median 1.9x TTM EV/Revenue exit multiple of on-premise software companies in Q1.

And size is beginning to matter. An analysis of SaaS M&A transactions over the prior two years reveals that the revenue of SaaS targets seemed to dramatically impact their exit valuations. SaaS sellers with TTM revenue below $10 million received a median EV/Revenue multiple of 2.5x, while those with TTM revenue greater than $50 million were awarded a median EV/Revenue multiple of 5.6x.

For the complete report (free download), go to: www.generationequityadvisors.com

Generation Equity Advisors, LLC is an independent investment bank and M&A advisory firm focused exclusively on the global Software, IT Services and Digital Media industry sectors. We advise buyers and sellers of companies and efficiently execute transactions to increase shareholder value. Our professionals have advised on $20+ billion in M&A transactions to date and have current relationships globally with technology and media companies as well as leading private equity firms.

Q1 2012 - Digital Media M&A Update

Digital media M&A

Social media will dominate M&A in 2012 despite healthy 2011 deal flow in the digital media and Internet space, a lot of remaining companies need to be sold.  In social gaming, Facebook will be an active buyer, and Asian buyers such as Nexon, NHN and Tencent will be looking for a North American foothold through acquisitions.

There were 681 M&A transactions in the Digital Media sector worth $36 billion for the 6 month period ending March 29, 2012 versus 615 transactions worth $42 billion in the prior 6 month period ending September 29, 2011.


The Median Enterprise Value for Digital Media M&A deals was 10.8x’s EBITDA and 2.6x’s Revenue for the 6 month period ending March 29, 2012 versus 10.8x’s EBITDA and 2.5x’s Revenue for the 6 month period ending September 29, 2011.


The breakdown between Strategic versus Financial buyers was relatively stable at 86% Strategic and 14% Financial for the 6 month period ending March 29, 2012.  Financial buyers have slightly increased their buying spree for the 6 month period from 10% as of September 29, 2009 to 14% as of March 29, 2012.

Highlights of recent Digital Media M&A transactions in Q1 2012 include:

• Deloitte acquires mobile apps firm Ubermind for $45 million.
• Youku acquires Tudou for $1 billion to create online video powerhouse.
• Populis Blog Network Buying in to Latin America and acquires Cidade Internet, a Brazilian portal which publishes 10 popular websites and other blogs including Fofocando, Automovel and Das Marias.
• Online game developer Shanda Interactive gets $2.3 billion management buyout by its CEO.

Online Marketing M&A

 

There were 160 M&A transactions in the Online Marketing sector worth $4.6 billion for the 6 month period ending March 29, 2012 versus 157 transactions worth $8.9 billion in the prior 6 month period ending September 29, 2011.

The median Enterprise Value (EV)-to-Revenue was 1.9x and EV/EBITDA was 16.8x during the latest 6 month period ending March 29, 2011 for the Online Marketing sector versus 2.2x EV/Revenue and 13.6x EV/EBITDA during the prior 6 months period ending September 29, 2011.

The breakdown between Strategic versus Financial buyers by volume was relatively stable at 87% Strategic and 13% Financial for the 6 month period ending March 29, 2012.

Highlights of recent Online Marketing M&A transactions in Q1 2012 include:

• Mood Media Corp. acquires DMX for $86 million in cash. DMX provides multi-sensory branding services, delivering services to over 100,000 locations.
• Social analytics company and ad network 33across announced the acquisition of Tynt, a sell-side analytics tools company that aggregates data to tell publishers about their audience, protect their content and even leverage search engine optimization to drive traffic.
• GroupOn acquires FeeFighters, an online comparison shopping site for credit card processors. Groupon has been on a shopping spree lately, buying up a number of startups, including Kima Labs, Hyperpublic, Adku, and others in recent weeks.
• Vocus acquired iContact for approximately $91 million in cash, $9 million in common stock and $79 million in redeemable convertible preferred stock, aggregating $169 million of total consideration, net of $10 million cash acquired.
• Social mobile platform PlayPhone has acquired marketing specialist SocialHour for $51.5 million in stock.

The complete research report, including tables and graphs, can be downloaded (free) here: 

http://www.generationequityadvisors.com/files/GEA_Digital_Media_MnA_Update_Q1_2012_2.pdf

GENERATION EQUITY ADVISORS, LLC

1100 GLENDON AVE, STE 1731

LOS ANGELES, CA 90024

Technology and Digital Media Investment Banking and M&A Advisory

Q4 2011 - IT Services M&A Update and 2012 Outlook

There were just under 600 M&A transactions in the IT Services sector announced for 2011, up from 443 in 2010.  Q4 2011 noted 148 transactions announced, slightly down from 161 the previous quarter.

Consulting deal volume jumped 38% in 2011, with median deal size more than doubling to $59.7 million. The median revenue multiple for the period fell, however, weighed down by a number of deals during Q1, including as CSK Corporation’s acquisition by Sumitomo (0.3x) and RWD Technologies’ acquisition by GP Strategies (0.4x). The subsector’s largest transactions included Charterhouse Capital’s $950 million investment for 65% of Environmental Resources Management at 2.0x revenue, as well as Genpact’s $550 million acquisition of Headstrong for 2.5x revenue.

Systems integration deals rose year-over-year, but median deal size dipped to a low of $10.2 million. The median revenue multiple stayed flat at 0.8x and the median EBITDA multiple slipped to 7.4x, although there were few data points for comparison. The majority of deals in this subsector are valued well below $100 million, a sign that consolidation of smaller innovators by larger players continues to dominate. The largest systems integration deals of the year included the acquisition of Value Team S.p.A by NTT Data Corporation for $364.5 million, as well as Ness Technologies’ acquisition by Citi Venture Capital for $341.8 million.  Stefanini IT Group (Brazil) acquired U.S. based Code X, Inc. (CXI) in Q1 2011 for an undisclosed amount. Generation Equity Advisors advised on this transaction.

The number of deals in the offshore outsourcing sector ticked up 37% year-over-year, the median deal size of $93.5 million exploded for the second year in a row, boosted by the $1.2 billion investment in Patni Computer by iGATE. Even excluding the Patni transaction, median deal size grew to $50 million in 2011 versus $20 million in 2010.

Government services is the only sub-sector that reported lower deal volume. Announced deals slipped 28% while median deal size fell 49%. These declines reflect increased scrutiny of spending and overall uncertainty surrounding the federal budget. Multiples remained relatively unchanged, however, and the median revenue multiple ticked slightly higher in 2011 to 1.3x while the median EBITDA multiple of 12.1x in 2011 was boosted by deals including Paradigm’s acquisition by CACI International for $61 million and 29.5x EBITDA, Ares Management’s acquisition of GTEC for nearly $315 million and 16.4x EBITDA, SRA International’s sale to Cerberus Capital for 12.1x, and High Performance Technologies sale to Dynamics Research for 12.0x EBITDA.

IT staffing deal activity decreased slightly in 2011, but median deal size grew more than 93% year-over-year, to $89.0 million. The IT staffing sectors median revenue multiple for 2011 was flat at 0.3x and its median EBITDA multiple was higher at 9.5x.  The largest transaction in the subsector was SFN Group’s acquisition by Randstad Holdings for $760 million. Other interesting deals in the space included the acquisition of Staffmark by Recruit in October for $295 million; Staffmark was one of the few IT staffing firms to have filed for an IPO (estimated $125 million) earlier in 2011.

2012 M&A Outlook

We expect M&A activity to remain steady for 2012 and possibly uptick further if the lending environment eases globally.  While Europe is in economic turmoil, the U.S. is stabilizing.  Emerging markets such as Brazil, Argentina and China are all on the upswing and in growth mode.  We expect some financial buyers (private equity) to remain on the sidelines while strategic buyers (companies) will acquire to capture growth.

Buyout firms accounted for around 16 percent of company takeovers in 2011.

As for IT Services firms, large acquirers have strong balance sheets and the ability to make both sizable and small, tuck-in acquisitions to complement organic growth. More diversified services firms will continue to support higher public market valuations (e.g. Accenture, CGI, IBM) which should drive aggressive M&A strategies in 2012.

Volatile equity markets slowed mounting U.S. M&A deal activity in the third and fourth quarters, following growing deal momentum in the first two quarters of 2011.  In light of concerns over Europe and a pullback in financing, U.S. merger and acquisition activity in the second half of 2011 was driven by well-prepared dealmakers focused on executing acquisitive growth strategies and availability of businesses with strong fundamentals– a key trend expected to continue into 2012, according to PwC's Year-End U.S. M&A Outlook.

Sellers now are looking for both speed and certainty in a deal, and also pursuing various alternative options and scenarios as they proceed as a way of maximizing the asset’s value. With sellers in the driver's seat, buyers must remain poised and ready when deal negotiations continue for a prolonged timeframe. Overall, the M&A markets are on track to stabilize further and increase overall over the next few years.

Epam Systems Inc, an IT services provider with operations in Russia, is aiming to move ahead with its planned U.S. initial public offering in the first quarter of 2011, according to Reuters.

Epam filed with U.S. regulators in June to raise up to $100 million in an initial public offering of its common stock. The company did not reveal how many shares it planned to sell or their expected price, but said at the time it would use the proceeds for acquisitions and general corporate purposes.

Both Glasshouse Technologies and Fusionstorm cancelled their IPO’s for 2012.

For the full report, you can download (free) at: www.techmediamergers.com

Generation Equity Advisors, LLC

1100 Glendon Ave, Ste 1731

Los Angeles, CA 90024

Q4 2011 - Digital Media M&A Update and 2012 Outlook

Digital Media M&A Update - Q4 2011 and 2012 Outlook
 Download the full report (free) here:  www.techmediamergers.com

Q4 2011 – Global M&A Update

According to MergerMarket, global M&A for 2011 totaled $2,178.4 billion, up 2.5% from the same period in 2010 ($2,125.9 billion), making it the busiest year since 2008 (which was at $2,405.8 billion).  12,455 deals were announced in 2011, 1.3% below the number for 2010 (12,296 deals).

Activity did, however, decrease over four successive quarters, with $432 billion-worth of deals announced globally in Q4 2011, down 22.5% from Q3 2011 ($557.5 billion). Fourth quarter activity was 39% lower than in Q4 2010 (US$ 708.1bn), with the lowest quarterly total since Q3 2009 (US$ 325.4bn).

2011 was the busiest year for cross-border M&A since 2008, in spite of a gradual slowdown in M&A activity after the first half of the year. Cross-border deals (by individual countries) announced in 2011 added up to $874.4 billion and regional cross-border deals were up to $593 billion, an increase of 9.8% and 19.6% respectively since 2010, which saw $796.7 billion-worth by country and $495.7 billion-worth by region.  2011 booked cross-border deals between individual countries accounting for 41.5% of global M&A activity, the second highest proportion since 2007 when $1,564.4 billion-worth accounted for 42.8%.

According to The 451 Group, acquirers spent $219 billion by purchasing 3,690 information technology, telecommunications and Internet companies around the world in 2011—a 17% increase in spending and a 13% increase in number of deals year-over-year.

The total dollar value increase was led by multibillion-dollar strategic deals from top-tier technology companies such Hewlett Packard (HP), Google, Microsoft, SAP and Texas Instruments.  Mega deals included Microsoft’s $8.5 billion purchase of Skype, Google’s $12.5 billion successful bid for Motorola Mobility patents, Texas Instrument’s $6.5 billion acquisition of National Semiconductor, HP’s buyout of Autonomy for $11.7 billion, and SAP spending $3.65 billion to acquire human capital management software vendor SuccessFactors.

It was also noted that the Media, Information, Marketing Services and Technology sectors in the U.S. booked nearly 900 transactions in 2011 totaling $47 billion, a 9% increase over 2010.

Emerging market (BRIC) buyout activity, valued at $32.3 billion, accounted for 11.6% of global buyout activity in 2011, up from 11.5% in 2010, and the highest contribution since 2009 (19.1%).  Europe is the region that invested the most in the emerging markets in 2011, accounting for 40.2% of cross-border deal value ($80.4 billion): the UK, France, Germany and the Netherlands accounting for 21.1%, 17.6% and 9.6% (for both Germany and the Netherlands) of European-related inbound deal value respectively.

The global average deal size for Q4 2011 was $291 million, the lowest Q4 average since 2007 (at $277m).

Cash-only was the preferred structure for cross-border deals in Q4 2011, with cash-only deals accounting for approximately 94% of the value of all cross-border deals announced in Q4 2011, compared with 90% in Q3 2011.

In all, technology acquirers increased M&A spending for the second year in a row. Moreover, total deal count hit its highest level since 2006, as M&A activity across sectors and across value continues to rebound from the downturn of the 2008-2010 recession.

Multiples and Deal Premiums

The average premium (one day before) of global M&A deals for publicly listed companies in Q4 2011 increased to 33.5%, driving the annual average up to 28.5%, up from 22.2% in 2010. North American premiums averaged 35.9% in 2011, an increase from 31.6% in 2010. Meanwhile, European premiums for the year averaged 21.9%, the second highest average since 2002, only topped by 2008’s average of 22.9%. The Asia-Pacific region saw an average premium of 21 %, again the highest average premium since 2008 (24.1%).

The average EBITDA multiple across global M&A in 2011 was 12.6x, down from 14.9x in 2010 and the lowest average since 2003 (10.6x). The European average EBITDA multiple in 2011 was 12.1x, the second-lowest since 2004, and 11.5x in 2009.

The quarterly average global EBITDA multiple decreased in the last quarter of the year to 12.1x, from the previous quarter’s 15.8x, a drop driven by significant decreases in North America and Asia-Pacific, from 16.3x in Q3 to 12.8x in Q4 in North America, and from 20.4x to 10.1x in Asia-Pacific. Europe, however, showed an increase in the average EBITDA multiple on M&A deals in Q4 2011 to 15.3x, up from 14.4x in Q3 2011.

The TMT (Technology, Media & Telecoms) sector recorded the highest average EBITDA multiple – at 15.7x – in 2011, overtaking 2010’s leading sector Energy, Mining & Utilities which averaged 19.5x.

Digital media M&A

Recent announced M&A Transactions in the Digital Media sector for Q4 2011 and YTD 2012 include:

•                    RIM acquires NewBay for $100 million at approximately 5.0x LTM Revenues

•                    Yahoo acquires Interclick for $270 million at 2.0x LTM Revenues

•                    Rakuten acquires Kobo for $315 million

•                    Facebook acquires Gowalla (undisclosed)

•                    Google acquires Apture and Katango (undisclosed)

•                    Evolve Media acquires RealityTea.com, WebEcoist.com (Jan 2012)

Note: Full M&A table on Page 8

The sectors with the largest disclosed median enterprise value multiples for all of 2011 were Broadcasting with 3.8x revenue and Internet Media at 17.5x EBITDA.

The median revenue multiple rose from 1.5x in 2010 to 1.9x in 2011. The median EBITDA multiple moved slightly from 10.4x in 2010 to 10.6x in 2011.

The sector with the largest increase in volume in 2011 over 2010 was Online Marketing with a 29% increase from 332 transactions in 2010 to 428 transactions in 2011.

2012 M&A Outlook

We expect M&A activity to remain steady for 2012 and possibly uptick further if the lending environment eases globally.  While Europe is in economic turmoil, the U.S. is stabilizing.  Emerging markets such as Brazil, Argentina and China are all on the upswing and in growth mode.  We expect some financial buyers (private equity) to remain on the sidelines while strategic buyers (companies) will acquire to capture growth.

Buyout firms accounted for around 16 percent of company takeovers in 2011.

Volatile equity markets slowed mounting U.S. deal activity in the third and fourth quarters, following growing deal momentum in the first two quarters of 2011.  In light of concerns over Europe and a pullback in financing, U.S. merger and acquisition activity in the second half of 2011 was driven by well-prepared dealmakers focused on executing acquisitive growth strategies and availability of businesses with strong fundamentals– a key trend expected to continue into 2012, according to PwC's Year-End U.S. M&A Outlook.

Sellers now are looking for both speed and certainty in a deal, and also pursuing various alternative options and scenarios as they proceed as a way of maximizing the asset’s value. With sellers in the driver's seat, buyers must remain poised and ready when deal negotiations continue for a prolonged timeframe. Overall, the M&A markets are on track to stabilize further and increase overall over the next few years.

As for the Facebook IPO, it is planned to go out between April and June 2012 and will raise around $10 billion at a $100 billion valuation, according to Bloomberg news sources.  Facebook’s revenue more than doubled to $4.27 billion 2011 from $2 billion in 2010, research firm EMarketer Inc. said.

M&A TABLES AVAILABLE IN FULL REPORT 

Download the full report (free) here: www.techmediamergers.com

Generation Equity Advisors, LLC is an independent investment bank and M&A advisory firm focused exclusively on the global Software, IT Services and Digital Media industry sectors. We advise buyers and sellers of companies and efficiently execute transactions to increase shareholder value. Our professionals have advised on $20+ billion in M&A transactions to date and have current relationships globally with technology and media companies as well as leading private equity firms.

  

Aaron Solganick

President & Managing Director

+1 (310) 689-7370

aaron@generationequityadvisors.com

Chad Gardiner

Vice President

+1 (310) 689-7371

chad@generationequityadvisors.com

Nicolas Teboul

Associate

+1 (514) 969-3928

nicolas@generationequityadvisors.com

DISCLAIMER

The information contained herein is of a general nature and is not intended to address the circumstances of any particular company, individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. We perform our own research and also use third party research. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. This is not an offer or recommendation to buy or sell securities nor is it a recommendation to merge, acquire, sell or exit a specific company or entity.

Generation Equity Advisors, LLC

1100 Glendon Ave, Suite 1731, Los Angeles, CA 90024

United States of America