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Presentation from JEGI, February 2010
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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
32010 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
42010 IAB Annual Leadership Meeting
Source: JEGI transaction database. Includes media, information, marketing services & related technology sectors.
2003 2004 2005 2006 2007 2008 2009
52010 IAB Annual Leadership Meeting
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
62010 IAB Annual Leadership Meeting
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
72010 IAB Annual Leadership Meeting
Agenda
I. M&A Market Update
II. What the Deals are Saying… And Not Saying
82010 IAB Annual Leadership Meeting
What the Deals are Saying… And Not Saying
1. Is “Above the Line” Brand Advertising in Decline?
92010 IAB Annual Leadership Meeting
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%
102010 IAB Annual Leadership Meeting
Source: Yahoo! FinanceThis is not just the economic cycle
Decline of Brand Advertising?
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%
112010 IAB Annual Leadership Meeting
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
Decline of Brand Advertising?
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
122010 IAB Annual Leadership Meeting
“Reports of my death are greatly exaggerated.”
– Mark Twain
What the Deals are Saying… And Not Saying
1. Is “Above the Line” Brand Advertising in Decline?
2 H Will T ti Ch B d Ad ti i O li ?2. How Will Targeting Change Brand Advertising Online?
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142010 IAB Annual Leadership Meeting
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
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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
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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
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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
182010 IAB Annual Leadership Meeting
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
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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
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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
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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 ”
222010 IAB Annual Leadership Meeting
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”
232010 IAB Annual Leadership Meeting
What the Deals are Saying… And Not Saying
1. Is “Above the Line” Brand Advertising in Decline?
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?
242010 IAB Annual Leadership Meeting
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
252010 IAB Annual Leadership Meeting
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,
262010 IAB Annual Leadership Meeting
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
272010 IAB Annual Leadership Meeting
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
282010 IAB Annual Leadership Meeting
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
292010 IAB Annual Leadership Meeting
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?
302010 IAB Annual Leadership Meeting
Source: eMarketer (September 2009)
What the Deals are Saying… And Not Saying
1. Is “Above the Line” Brand Advertising in Decline?
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?
312010 IAB Annual Leadership Meeting
Role and Reach of Local
Pace of local deals picking up…
IPO FiliM&A Fi i IPO FilingM&A Financing
322010 IAB Annual Leadership Meeting
Role and Reach of Local
…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
332010 IAB Annual Leadership Meeting
Role and Reach of Local
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 (@$129k)Sales & Marketing = 38% of revenue
3 Low contribution margin3. Low contribution marginOnly 7% remains to support product and platform
342010 IAB Annual Leadership Meeting
Source: ReachLocal S-1. Based on nine months ending September 30, 2009.
352010 IAB Annual Leadership Meeting
Agenda
I. M&A Market Update
II. What the Deals are Saying… And Not Saying
III. Implications for M&A
362010 IAB Annual Leadership Meeting
Implications for M&A
Source: JEGI transaction database. Values for Newspaper sector reflect current public trading multiples due to lack of recent transactions.
The digital space is still a great place to be for creating value
2008-2009 M&A Multiples by Media Sector
0.9x 1.0x 1.2x
2.3x2.6x
3.1x
4.5x
16.0x15.1x
12.5x
8.6x7.6x7.8x7.1x
ConsumerMagazines
BusinessMagazines
Newspapers TraditionalMarketingServices
Database &Information
ConsumerOnline Media
InteractiveMarketingServices
Revenue MultipleEBITDA Multiple
372010 IAB Annual Leadership Meeting
Implications for M&A
M&A will be robust due to the rapid pace of innovation and adoption…
Time
Spee
d of
Con
sum
er A
dopt
ion
An Abbreviated History of Consumer Technology Adoption
Consumers adopting disruptive technology faster than ever before
Wheel
Television
BroadbandIn-Hand
Cell Phone
Microwave Popcorn
Personal Computer
Implications for M&A
…combined with strong projected growth in online advertising…
U.S. Online Advertising by Format ($ 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%
382010 IAB Annual Leadership Meeting
2009 2010 2011 2012 2013
Source: eMarketer (December 2009). Display includes banner ads, rich media and sponsorships.
Implications for M&A
…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
392010 IAB Annual Leadership Meeting
Source: Capital IQ. Includes media, online and software/services sectors.
Implications for M&A
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
402010 IAB Annual Leadership Meeting
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.
412010 IAB Annual Leadership Meeting
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
Implications for M&A
Implications for M&A
Private Equity was active in this sector, until they hit a bump…
Recession + Credit Meltdown
422010 IAB Annual Leadership Meeting
Implications for M&A
… 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
432010 IAB Annual Leadership Meeting
1990s 2000 2004 2008 2012+
Implications for M&A
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
442010 IAB Annual Leadership Meeting
Implications for M&A
And finally, we expect Google will buy Oregon and British Columbia…
… just to mess with Microsoft
452010 IAB Annual Leadership Meeting
Agenda
I. M&A Market Update
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
462010 IAB Annual Leadership Meeting
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
472010 IAB Annual Leadership Meeting
Selected Recent JEGI Transactions
482010 IAB Annual Leadership Meeting
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
492010 IAB Annual Leadership Meeting
Revenue / EBITDA MultiplesHigh: 7.8x / ∞ x Mean: 4.4x / 22.3x
2009/2010 YTD Transactions
502010 IAB Annual Leadership Meeting
In each transaction JEGI’s client is mentioned first.
2008 Transactions
512010 IAB Annual Leadership Meeting
In each transaction JEGI’s client is mentioned first.
2007 Transactions
522010 IAB Annual Leadership Meeting
In each transaction JEGI’s client is mentioned first.
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Tolman [email protected]
532010 IAB Annual Leadership Meeting