Jegi newmedia 2010

Brand Advertising Online and The Next Wave of M&A

IAB Annual Leadership MeetingFebruary 2010

Agenda

I. M&A Market Update

22010 IAB Annual Leadership Meeting


M&A Market Update

200#1 This Week

May 200812,829

Mar 20096,547

What was the biggest surprise of the last two years?

Surprise #1 Surprise #2

M&A Market Update

For those who spent last year in a cave…

U.S. Media & Information M&A Activity

N b f T tiTotal Value ($ billions)

$104.4637

872812

615

Number of Transactions

$54.0 $60.6 $65.6456

542

301

$16.1$29.9 $31.8

2003 2004 2005 2006 2007 2008 2009


Source: JEGI transaction database. Includes media, information, marketing services & related technology sectors.

2003 2004 2005 2006 2007 2008 2009


M&A Market Update

Interactive Sector M&A Activity

… M&A rebounded in late 2009, especially interactive

1 Omniture $1,800

2 SPSS 1,200

3 Zappos 850

4 AdMob 750

5 BankRate 571

6 Razorfish 530

7 Web Reservations Int’l 458

8 Playfish 400

9 BuscaPé 374

10 Retail Convergence 350

Total $7,283

2009 Top Deals ($ mm)

Source: JEGI transaction database. Includes interactive marketing services, online media and mobile.

$8.4

$4.6

$1.8

$13.3

165

129

178214

Number of TransactionsTotal Value ($ billions)

1st Half 2008

2nd Half 2008

1st Half 2009

2nd Half 2009

M&A Market Update

Public valuations have only partially recovered to prior levels

Median EBITDA MultiplesMedian Revenue Multiples

Year End 2007Year End 2008

Multiples rebounded from end-2008 lows,

5.2x5.6x

Year End 2008Today

33.1x

but remain well short of 2007 levels

3.1x

1.9x 1 8x

2.9x2.1x

3.2x15.3x

19.2x

13.4x 12.2x13.5x14.8x

1.3x1.8x

Online Interactive Video

6.9x 7.2x

Online Interactive Video


Source: Capital IQ

Online Media

Interactive Marketing

Video Infrastructure

Online Media

Interactive Marketing

Video Infrastructure

M&A Market Update

Tools Social E-commerce

Broad range of late-2009 interactive deals as M&A resumed

Agency

S h M iGM di Search MusicGamesMedia

Ad Delivery B2B


Agenda


II. What the Deals are Saying… And Not Saying


What the Deals are Saying… And Not Saying

1. Is “Above the Line” Brand Advertising in Decline?


Decline of Brand Advertising?

Traditional brand advertising vehicles have been hammered

20%

Valuations Underperform Market Distressed Sales

S&P 500

0%

-20%

Yahoo!NY Times Co.CBS

G

-40%

-60%

GannettMedia General

2007 2008 2009 2010

-80%

-100%


Source: Yahoo! FinanceThis is not just the economic cycle


Spending continues secular shift to promotional and interactive

Consumer Advertising Spending 2003 2013 Net New Spending 2009 13

During 2009, for the first time, consumer marketer spend on direct, promotional and digital marketing exceeded total ad spending in traditional measured media

$140

$160

Consumer Advertising Spending 2003-2013

Traditional Brand Media Growth Sectors Growth

Sectors99%

Net New Spending 2009-13

$100

$120

$140

Bill

ions CAGR = 7.8%

99%$41 billion

$60

$80

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

CAGR = (1.9%) Traditional Brand Media

< 1%


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.

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013


Branding and execution move closer together for some

But more efficient promotion requires better differentiation

AKA branding

Top 10 Clients in 2009

Example: Major Online Ad Net… AKA branding


“Reports of my death are greatly exaggerated.”

– Mark Twain



2 H Will T ti Ch B d Ad ti i O li ?2. How Will Targeting Change Brand Advertising Online?



Rise of Targeting

Source: eMarketer (January 2010); Think Equity; JEGI estimates

Market shift to selling audience vs. sites

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%

Display Advertising Demand

1. SitesSold on site-specific, channel or run of network comps

2. AudienceIndividually targeted by behavior (e.g. in-market) plus context, geo, demos

2009 2010 2011 CAGR$ billions

Display Advertising 2009-2011: Illustrative View

Rise of Targeting

1. Agency Platforms 2 Demand Side Platforms

Massive proliferation of players in targeting audiences for brand ads

1. Agency Platforms 2. Demand Side Platforms

5. Starbucks4. Ad Exchanges and

Publisher Side Platforms 3. Data Sources


Rise of Targeting

Surge of audience-related investments in Targeting and Real Time Bidding (RTB) Platforms

Major Transactions/Financings

$ millions

Significant RTB Investment

x

x $95

$30 (TK)

(TK)

Plus many DSPs

$52

~ $140


Healthy revenue multiples

Source: Capital IQ

Biddable volume scaling

Rise of Targeting

Coming land war for margin in the display ad delivery chain

PublishersAd Delivery Players

CDNs

Ad Targeting Players

Display

Ad Serving

Publisher margins get

Rich Ads

Video Nets

Ad N t k squeezedAd Networks


Rise of Targeting

Crowded value chain squeezes display marginsILLUSTRATIVE

$5.00 cpm

($0 75)

New pressure

($2.00)

($0.75)

New participants

($0.25)$1.00 cpm

($0.25)($0.75)

($2.00)

Ad ti A Ad N t k D t Ad E h Ad S i / P bli h

How will current participants react?

Advertisers Agency Ad Network Data Provider

Ad Exchange Ad Serving/ Rich Media

Publisher


How will current participants react?

Source: JEGI estimates

Rise of Targeting

Online ad network transactions went silent in 2009

2007 2008 Ad N t k D l 2009 2010 Ad N t k D l2007-2008 Ad Network DealsM&A

2009-2010 Ad Network DealsMobile

PE Financing Web


Rise of Targeting

Clear divide between “old school” and newer audience-driven ad nets

Aggregate long-tail imps/channels Sell data-driven audiencesvsAggregate long tail imps/channels

Revenue: $26 million

Enterprise value: $200,000

Sell data driven audiences

Revenue: $42 million

Enterprise value: $110 mm

vs.

Audience-Driven Networks Scaling WellExamples

Acerno / AkamaiCollective Media Dotomi

UndertoneYahoo APT


Acerno / AkamaiAudience Science

DotomiSpecific Media

Yahoo APTand others

Source: Capital IQ

Rise of Targeting

Data is a valuable service, but is it a scalable business model?

List Management – around for a while…

Offline

Big bets on pure data providers

Online

Fragmented, many list brokers

Low margin after cost of acquiring data

Premium publishers very sensitive to control

$30 million invested

$52 million invested

Why will online be different?

HEAD SCRATCHER


To scale as a business, will data need to be tied to monetization – ad sales, DSP, transactions?

Source: Capital IQ

Rise of Targeting

Premium publishers losing a key advantage…

1. Premium Context

Publisher Display Value Proposition

1. Premium ContextAdvertising has better recall and impact

2. Premium AudienceAdvertising reaches target audience efficientlytarget audience efficiently

“Now I can target my audience i th h l ”


in other – cheaper – places.”

Rise of Targeting

…So how much can they win back as data gatekeepers?

1. Publishers originate premium user

Publisher Data Value Proposition

Will require different skills1. Publishers originate premium user Is cookie deletion – est at 10% per month – the publisher’s friend?

2 Publishers monetize data

Win back some – but not nearly all – of lost margin

So scale and new revenues2. Publishers monetize dataResell targeting data

Create own networks

So scale and new revenues will matter even more

Buy append data for own audience

Sell audience across “cloud”




2 H Will T ti Ch B d Ad ti i O li ?2. How Will Targeting Change Brand Advertising Online?

3. Are Video and Mobile the Next Big Things for Brand?


Online Video Growth

Wave of video deals – is online video finally scaling up?

R t S l R t Fi iRecent Sales

$110

$ millions

Recent Financings

$33

$ millions

$110

$109$20

$20

$33

$16

$16

$13

$10

$11


Source: Capital IQ

$10

$10

Online Video Growth

Forecasts point to rapid growth for online video

Consumer

Proliferation of Video Applications

% of Total U.S. Online Ad Spending

U.S. Online Video Ad Spending

Annual Amount ($ millions) B2B

$7 8%

10.1%

12.4%

Direct-to-living room$1 029$1,440

$1,966

$2,858

$3,844

4.6%6.1%

7.8%

Video as killer appDirect to living room,direct-to-device“Stateful” portabilityCustomer choice on business model –

$1,029

2009 2010 2011 2012 2013

Video as killer app, embedded in many more applicationsEnterprise, CRM, CMS, healthcare, education,


bus ess odepay or ads

Includes in-stream, in-banner and in-text adsSource: eMarketer (December 2009)

e-learning, government

Online Video Growth

If anything, video is likely to grow faster than forecasted

U.S. Video and Display Advertising - 2009

In-Stream Video

$ billions

$0 5 Online video currently a

$6.7Display & In-Page Video

Video$0.5 yfraction of total TV and online spending

One European ad net

$73.2Tele ision

One European ad net reports 60% of video buys now coming directly from TV budgets

TelevisionShift 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.

Online Video Growth

Shift in agency dynamic is key

Video – Past

Scarce inventory small buys

Video – Soon

Inventory and campaigns scalingScarce inventory, small buys

Inconsistent standards across publishers, providers

Inventory and campaigns scaling

Better standards (VAST, VPAID) and more efficient workflow emerging

Very labor intensive to plan, execute, bill and reconcile

Better (than TV) commissions

Money loser for agency More attractive


Time for Mobile?

Is mobile the next big advertising medium for brands?

Mobile Deal FrenzyU S Mobile Advertising Spending Mobile Deal Frenzy

$750 mm

Recent deals at rich valuations$1,560

U.S. Mobile Advertising Spending

$ millions

$

$275 mm

$416$593

$830

$1,140

$211 million of disclosed VC in nine more mobile ad nets

2009 2010 2011 2012 2013Source: eMarketer (September 2009)

$1 billion value ≈

Just how rich are these deals?

$750 mm


entire 2012 mobile ad revenue

$275 mm

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 Examples:still “TBD” as a branding medium

Mobile has small screens and distracted, task-oriented users

Self identification + intent + location = Killer promotional vehicle

Better devices are out (iPhone, Android), agency adoption will be slow

BUT… help a consumer complete task pand is this a great promotional medium?


Source: eMarketer (September 2009)



2 Ho Will Targeting Change Brand Ad ertising Online?2. How Will Targeting Change Brand Advertising Online?

3. Are Video and Mobile the Next Big Things for Brand?

4 What About Local?4. What About Local?


Role and Reach of Local

Pace of local deals picking up…

IPO FiliM&A Fi i IPO FilingM&A Financing



…But, is there any such thing as “local”?

S f

Do consumers think “local”, then “I need X” … or just think “I need X”?

Local Head Scratcher

Local applications – solving a problem

Content audience and sales costs low –

DNA of Winning Local Models

What does this say for “Citysearch” vertically integrated models that rely on content aggregation and search?

Content, audience and sales costs low preferably zero for at least part

Leveraging traditional media is one way, mobilizing the community is anotherg y



Emerging models efficiently leverage partners and the crowd

V ti ll I t t d M d l Hi h L M d lVertically Integrated Model Higher Leverage Models

1. Buying consumer trafficCOGS = 55% of revenue

2. 525 local sales reps (@$129k)Sales & Marketing = 38% of revenue

3 Low contribution margin3. Low contribution marginOnly 7% remains to support product and platform


Source: ReachLocal S-1. Based on nine months ending September 30, 2009.


Agenda


II. What the Deals are Saying… And Not Saying

III. Implications for M&A


Implications for M&A

Source: JEGI transaction database. Values for Newspaper sector reflect current public trading multiples due to lack of recent transactions.

The digital space is still a great place to be for creating value

2008-2009 M&A Multiples by Media Sector

0.9x 1.0x 1.2x

2.3x2.6x

3.1x

4.5x

16.0x15.1x

12.5x

8.6x7.6x7.8x7.1x

ConsumerMagazines

BusinessMagazines

Newspapers TraditionalMarketingServices

Database &Information

ConsumerOnline Media

InteractiveMarketingServices

Revenue MultipleEBITDA Multiple



M&A will be robust due to the rapid pace of innovation and adoption…

Time

Spee

d of

Con

sum

er A

dopt

ion

An Abbreviated History of Consumer Technology Adoption

Consumers adopting disruptive technology faster than ever before

Wheel

Television

BroadbandIn-Hand

Cell Phone

Microwave Popcorn

Personal Computer


…combined with strong projected growth in online advertising…

U.S. Online Advertising by Format ($ billions)

SearchDisplay

Lead GenerationVideo 2009-2013 CAGR:

Classifieds Email

$25 2$28.3

$31.0Search 8.0%Display 5.3%Classifieds (1 6%)

$22.4 $23.6$25.2 Classifieds (1.6%)

Lead Gen 6.9%Video 39.0%E il 7 1%Email 7.1%Total 8.5%


2009 2010 2011 2012 2013

Source: eMarketer (December 2009). Display includes banner ads, rich media and sponsorships.


…and the lack of an IPO exit window for most successful companies

Completed

U.S. Media & Technology IPO Activity

Cancelled/Withdrawn

29

Cancelled/WithdrawnAnnounced

42 40 45

8 6

15

14 714

2005 2006 2007 2008 2009


Source: Capital IQ. Includes media, online and software/services sectors.


Low macro growth + record cash = strategics must acquire to grow

E i G th O tl k C t C h H ldi

Country/Region 2007 2008 2009E 2010E

Economic Growth Outlook

$616 $648 $648 $655 $665 $702$773

Corporate Cash HoldingsS&P 500 Cash Holdings ($ billions)

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%

$616 $6 8 $6 8 $

China 13.0% 9.0% 8.5% 9.0%

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:

Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09

Advanced 2.7% 0.6% (3.4%) 1.3%

Emerging 8.3% 6.0% 1.7% 5.1%

World 5.2% 3.0% (1.1%) 3.1%

Cisco $39.6Microsoft $33.4Google $24.5Apple $24.8

Amazon $6.4Time Warner $4.8Yahoo! $3.3Verizon $2.5


Source: International Monetary Fund (IMF) World Economic Outlook, October 2009

ppMotorola $8.0 IAC $1.8

Source: Standard and Poor‘sExcludes Financial, Utilities and Transportation sectors.


We don’t need Google and Microsoft to buy everything –new acquirers will enter the brand advertising value chain

Expect unexpected combinations

Major Agencies Build baseline functionality

Web Delivery Advertising as an application

Large Display Ad Nets Differentiate with data + tools

Performance Advertising Apply ROI discipline

Cable & Entertainment Rich consumer experiences

Infrastructure Adding intelligence to networks

Marketing Analytics Application of rich user data

Consumer Data Expand from customer data to customer acquisition



Private Equity was active in this sector, until they hit a bump…

Recession + Credit Meltdown



… 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

DATABASE & INFORMATION

B2B ONLINE MEDIA

CONSUMER ONLINE MEDIA

INTERACTIVE MARKETING


1990s 2000 2004 2008 2012+


Diversified media groups wrestling with

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 advertisingp 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



And finally, we expect Google will buy Oregon and British Columbia…

… just to mess with Microsoft


Agenda


II Wh t th D l S i A d N t S iII. What the Deals are Saying… And Not Saying

III. Implications for M&A

IV. About the Jordan, Edmiston Group


About JEGI

The Jordan, Edmiston Group, Inc. (“JEGI”)L di I d d t I t t B kLeading Independent Investment 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

B d l ti hi j di t h l d t d k tiBroad relationships across major media, technology, data and marketing acquirers as well as financial buyers

Deep domain expertise plus disciplined transaction processes

Very high transaction completion rate


Selected Recent JEGI Transactions


Diverse Buyers & Premium Valuations

Seller Sector Buyer

1. Acerno Behavioral targeting Akamai

2. Circles

3. Congressional Qterly

4 C f

g g

Customer care

Legislative data

S i l di l ti

Sodexo

Economist Group

TNS4. Cymfony

5. Gorilla Nation

6. Klipmart

Social media analytics

Brand advertising

Online video advertising

TNS

Great Hill Partners

DoubleClickp

7. KnowledgeStorm

8. m:metrics

9 M

g

Professional IT search

Mobile measurement

R l ti h

TechTarget

comScore

V iSi9. Moreover

10.PointRoll

Real time search

Rich media advertising

VeriSign

Gannett

R / EBITDA M lti l


Revenue / EBITDA MultiplesHigh: 7.8x / ∞ x Mean: 4.4x / 22.3x

2009/2010 YTD Transactions


In each transaction JEGI’s client is mentioned first.

2008 Transactions



2007 Transactions



Download this presentation or sign up toDownload this presentation or sign up to receive JEGI’s Client Briefing newsletter

www.jegi.comjeg co

Tolman [email protected]


Jegi newmedia 2010

Technology

Transcript of Jegi newmedia 2010