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What Buyers Are Thinking & Doing in Today's M&A Market
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Transcript of What Buyers Are Thinking & Doing in Today's M&A Market
Gridley Presentation at DFJ Gotham Annual Meeting
May 17, 2012
What Buyers Are Thinking & Doing in Today’s M&A Market
3
What are Traditional Industry Leaders Doing in M&A?
4
Unprecedented Time for Enormous Value Creation
• Traditional Industry leaders are highly vulnerable like never before
Open Architecture New Business Models Open Source Cloud Computing
• Innovation at record speeds – Approximately $130 Billion of value created in 3 years
5
Gridley’s Message on Innovation in Tech Today
Revenue Multiple
0.0x$0
$200
5.0x 10.0x 20.0x
$70
$30
Eq
uit
y V
alu
es
$12.7
$11.0
$8.0
$3.9
$2.2
$0.8
$1.6$0.5 $0.4
$0.4 $1.2
$0.6
$0.9 $0.4
$10.7$4.7
$208.7
$73.0
$182.3
Comparative Equity Values ($ in billions)
Traditional Ad Agencies
Performance Based Marketing
Legend
Emerging Threats
Revenue Multiple
0.0x$0
$200
5.0x 10.0x 20.0x
$70
$30
Eq
uit
y V
alu
es
$12.7
$11.0
$8.0
$3.9
$2.2
$0.8
$1.6$0.5 $0.4
$0.4 $1.2
$0.6
$0.9 $0.4
$10.7$4.7
$208.7
$73.0
$182.3
Comparative Equity Values ($ in billions)
Traditional Ad Agencies
Performance Based Marketing
Legend
Emerging Threats
Revenue Multiple0.0x 15.0x 22.5x 50.0x7.5x
$0
$70
$30
$20Equ
ity V
alu
e
$73.0
$6.2
$7.1
$1.1$6.0
$11.7$10.7
$1.0
$3.2
$9.4
$11.9
$2.7
$32.4
$40.1
Comparative Equity Values ($ in billions)
Traditional Leaders
Emerging Innovators
Legend
57.5xRevenue Multiple
0.0x 15.0x 22.5x 50.0x7.5x$0
$70
$30
$20Equ
ity V
alu
e
$73.0
$6.2
$7.1
$1.1$6.0
$11.7$10.7
$1.0
$3.2
$9.4
$11.9
$2.7
$32.4
$40.1
Comparative Equity Values ($ in billions)
Traditional Leaders
Emerging Innovators
Legend
57.5x
Traditional Ad Agencies vs. Ad Tech Traditional Media vs. Social Networks
Retail vs. Ecommerce Emerging Companies vs. Traditional Big Data
0.0x 4.0x 8.0x 12.0x
($BN)
$0
$200
$100
$50
Equity V
alu
e
Revenue Multiple
$1.4$3.4
$14.7
$7.9
$1.0
$8.4
$2.0$0.6
$185.2
$101.2
$34.6
$34.9
$42.4
$10.4
$0.4
Traditional Retail
E-Commerce
0.0x 4.0x 8.0x 12.0x
($BN)
$0
$200
$100
$50
Equity V
alu
e
Revenue Multiple
$1.4$3.4
$14.7
$7.9
$1.0
$8.4
$2.0$0.6
$185.2
$101.2
$34.6
$34.9
$42.4
$10.4
$0.4
Traditional Retail
E-Commerce
Sources: Second Market and CapIQ as of November 25, 2011.Revenue Multiple
$200
2.0x 4.0x
Equ
ity V
alu
e
0.0x
$0
$6
$12.1
$10.2
$9.4 $4.7
$4.1
$3.2
$1.5$0.9
$0.6$0.5
$12
1.0x 3.0x
Sources: Second Market and CapIQ as of November 25, 2011
$208.7
$45$44.6
Traditional Leaders
Emerging Innovators
Legend
Sources: Second Market and CapIQ as of November 25, 2011.Revenue Multiple
$200
2.0x 4.0x
Equ
ity V
alu
e
0.0x
$0
$6
$12.1
$10.2
$9.4 $4.7
$4.1
$3.2
$1.5$0.9
$0.6$0.5
$12
1.0x 3.0x
Sources: Second Market and CapIQ as of November 25, 2011
$208.7
$45$44.6
Traditional Leaders
Emerging Innovators
Legend
6
The New “Kids” on the Block
Company Year Founded IPO Date Value Today
(Billions)
Revenue
(Billions) # of Employees
Older Brothers/Sisters
1998 Aug 2004 $38,875 33,077 $197,320
1995 Sep 1998 $12,383 27,770 $52,604
2008 Nov 2011 $1,610 11,471 $7,605
2009
2007 NA NA 75 $1,000(1)
2007 Dec 2011 $1,218 2,846 $5,850
2006 NA NA 141 $10,700(1)
2004 May 2012 $4,038 3,539 $100,000(1)
2002 May 2011 $617 2,447 $11,415
NA $4,000(1) NA NA
Source: CapIQ. Company filings. (1) Estimated value.
7
How New Kids Are Thinking About & Doing M&A
• Strategic value orientation not traditional financial metrics
• Tech and team focus – early stage deals
• Stock = big component of transaction
• Much more comfortable thinking across capabilities (advertising, commerce,
social, analytics, payments) as these disciplines converge
• Foster early relationships with entrepreneurs and boards that back them
What New Kids Are Acquiring
8
When New Kids Grow Up – eBay Case Study
Discover Pay
In-store
scanner
Nearby
Used, online
Online
retail
Nearby
Used, online
Online retail
Virtual goods
Local Retailers
/ SMB
Any product
Mobile
Location-
based service
Retailer
At Home
eBay made a series of acquisitions, most notably of PayPal, GSI Commerce, Red Laser, Zong, and Milo,
that enabled eBay to become a front-runner in the race to become the next generation in-store leader
Better
Merchandising
9
A Word About Other Buyers – Traditional Industry
Leaders
• Record levels of cash / business performing well
• Need to get their attention for M&A
• Conservative approach – not “stretch” / not “bet the bank”
• Fair pricing if interested
• Must be a logical fit – minimal “out-of-the-box” thinking
10
A Word About Other Buyers – Later Stage Growth
PE Firms
• Very aggressive
• Looking for market leadership, good growth, experienced management
• Frequently able to compete on price with strategic buyers
• Plenty of “dry powder” on hand
Source: Buyouts.
$97.6 $98.7
$12.9
$29.6
$0
$20
$40
$60
$80
$100
$120
Deals Completed Funds Raised
$ in
billion
s
2011
Q1 2012
Fundraising Has Outpaced Investing YTD
11
• New York has become #2 tech hub behind SF Bay Area
• NEA & Accel building presence through new offices in New York
• New York “core competencies” a target focus for buyers
– Brands and consumer retail
– Advertising / Madison Avenue
– Financials / payments
• Serial entrepreneur cycle – team members of formerly acquired companies leave
to start new companies
– Dodgeball / Foursquare
– DoubleClick Mafia
A Word About the New York Scene
12
Source: Capital IQ, TechCrunch, public filings, and press releases. *rumored value
Date
06/15/2011
06/13/2011
02/06/2011
01/19/2011
02/03/2010
01/25/2010
09/08/2011
06/17/2010
08/05/2008
09/07/2010
Acquirer/Target
Transaction
Value (in $M)
$524
400*
315
296
225
200*
151
135
125
120
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
Top 10 Private Digital NY Sale Transactions January 2008 – December 2011 (Disclosed deals / rumored pricing available)
13
Advice for Private Company Sellers / VCs with
Companies They Want to Sell
• Decent market for good companies – “Flight to Quality”
• Lots of lower-quality companies / deals not getting done
• Be realistic about price unless most likely buyer is a “New Kid” – otherwise buyers
care about earnings and traditional valuation metrics
• Be cautious of the speed at which market and buyer tone changes (e.g. ad tech)
• When speaking to likely acquirers, stay close to acquirer’s product management
team vs. focusing only on corporate development
• Keep likely acquirers abreast of material company events such as fund raisings
• Actively pursue strategic integrations with likely acquirers
– Overlapping customers and/or integrated offerings go a long way
• Keep track of M&A heavy-hitters, who often times move to other companies
– Former Google M&A head Jason Harinstein now at Groupon
– Former Yahoo! M&A head Andrew Siegel now at Condé Nast
A Word About the IPO Market
15
The Tech IPO Market in 2012YTD
Source: Capital IQ, Public Filings.
Note: Highlighting denotes IPOs that priced above initial filing range.
• More than half of this year’s U.S. tech IPOs have priced above the range, and all
but one have traded up afterwards % Performance
Pricing Date Company Sector / Subsector
Market Cap
at IPO Size (MM) Filing Range
IPO
price
One
Week
Since
IPO
Mar 28 CafePress Int. Svcs. / eCommerce $324 $86 $16.00 - $18.00 $19.00 (4.7%) (18.4%)
Mar 28 Millennial Media Int. Svcs. / Mobile 989 133 $11.00 - $13.00 $13.00 53.5% 17.5%
Mar 21 ExactTarget Int. Svcs. / Email 1,252 162 $15.00 - $17.00 $19.00 37.7% 34.2%
Mar 21 Vantiv FinTech / Pmt. Processing 2,198 500 $16.00 - $18.00 $17.00 17.9% 28.0%
Mar 14 Demandware SaaS & Outsrc. / eCommerce 465 88 $12.50 - $14.50 $16.00 61.2% 72.1%
Mar 01 Yelp Int. Svcs. / Local 917 107 $12.00 - $14.00 $15.00 33.3% 35.1%
Feb 23 Bazaarvoice Int. Svcs. / eCommerce 682 114 $8.00 - $10.00 $12.00 40.6% 40.4%
Feb 17 Brightcove Int. Svcs. / Content Mgmt. 300 55 $10.00 - $12.00 $11.00 37.3% 38.6%
Feb 09 Synacor Int. Svcs. / Content Mgmt. 134 34 $5.00 - $6.00 $5.00 0.4% 84.8%
Mean $807 $142 30.8% 36.9%
Median $682 $107 37.3% 35.1%
A Word About Gridley
17
Gridley Overview
Gridley & Company, a New York-based boutique investment bank, provides advisory
services to companies in the Information Services industry
Leading Boutique • Sharp focus provides clients with valuable strategic insights and perspectives
• Specialize in Internet Services, Digital Media & Marketing Services, Data
Services, Financial Technology, and SaaS & Outsourcing Services
• Founded in 2001
• Headquartered in New York, NY
Strong Reputation • Strong industry reputation on assignments led by senior bankers
• Experienced, bulge-bracket trained M&A bankers – The “A” Team
Trusted Advisor • Thoughtful ideas – not just logical combinations
• Deliver value to buyers, sellers, and investors alike
• Broad industry network developed over 25+ years with industry leaders,
emerging growth companies, and senior investors
Gridley & Company
18
Interested in Other Gridley Resources?
• Available at www.gridleyco.com/what-we-think/resources/
Measurement
POS
Quarterly Newsletter
eCommerce Mobile Ad Tech
Digital Content Digital NY
Gridley & Company LLC
10 East 53rd Street, 24th Floor
New York, NY 10022
212.400.9720 tel
212.400.9717 fax
Twitter: @gridleyco
www.gridleyco.com
Linda Gridley
President & CEO
212.400.9710
QUESTIONS?