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Aaron Solganick
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Aaron Solganick is the CEO and founder of Los Angeles-based Generation Equity Advisors, a technology and digital media M&A advisor and investment banking firm. For 20 years, he has worked as an investment banker and M&A advisor to several transactions with an emphasis on Software, IT... More
My company:
Generation Equity Advisors, LLC
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Technology & Digital Media Merger Blog
  • Digital Media M&A and Financing – Q1 2011 Update 1 comment
    Apr 6, 2011 8:48 PM | about stocks: GOOG, YHOO, DMD, EBAY, IBM, PUBGY, GSIC, KITD
    M&A Deals and Values Are Rising

    The number of M&A deals in the Digital Media sector for Q1 2011 is up 18% from Q4 2010. With the exception of Ebay’s announced acquisition of GSI Commerce, most deals in this last quarter were small, under $1 billion. We expect 2011 to show further improvement in transaction volume and value.
     
    KIT Digital was very active, having made 4 acquisitions during Q1 2011Other active strategic buyers including: Google, Groupon, Publicis, IBM, Playdom, Zynga and other leading digital media companies will likely continue to be active in M&A given their large cash positions.
     
    The most active sectors overall within Digital Media in Q1 2011 include daily deals and shopping clubs (i.e. – Groupon), online video technology and publishing. 
     
    The daily deals and shopping clubs segment was very active in the Q1 2011 with 5 acquisitions. Transactions included ReachLocal’s acquisition of DealOn for $10 million, Archant’sacquisitionof 50% of Tickles, LivingSocial’s acquisition of Let’s Bonus, and Local.com’s acquisition of iTwango.
     
    M&A volume will likely continue to rise further as buyers’ and sellers’ expectations match up. We see 2011 staying a healthy M&A market and forecast the number of deals announced and valuations will rise further.
     
    Venture Investment Activity Increases
     
    There were 29 venture investments greater than $10 million in Q1 2011, worth a combined $3.2 billion. Compared to Q4 2010, investment activity, grew by 20%, while the average venture investment transaction value increased by over 150%.  
     
    During the quarter, there were four investments with transaction values above the $50 million, compared to five in the prior quarter. Among the largest investments announced during the quarter were Facebook’s $1.5 billion capital raise from Goldman Sachs, Groupon’s $950 million investment led by Andreessen Horowitz, and Angie’s List’s $54 million investment led by T. Rowe Price.
     
    Spark Capital was the most active financial investor, leading eight investments for the quarter, while Intel Capital led seven, Sequoia Capital led six and Kleiner Perkins Caufield & Byers and Accel Partners each led five venture investments.
     
     
    IPO Activity
     
    The market responded favorably to the recent IPO’s of Demand Media, Epocrates and Cornerstone OnDemand, all of which traded up more than 30% on the first day of trading. Q4 2010 also announced five IPOs, and all but one of them traded up after the first trading day. With 10 US-based companies with IPO filings currently in registration, including LinkedIn, HomeAway and Kayak.com, as well as a healthy amount of discussion regarding potential IPOs for companies like Yandex, RenRen and Groupon, the IPO market is expected to remain active over the next few quarters.
     
     
    Tech M&A Spending Up – Hits Post-Recession High
     
    According to The 451 Group - Lifted by AT&T’s massive consolidation play, tech M&A spending in the just-closed first quarter hit a post-recession record of $84 billion – one-third more than the previous high-water mark of $62 billion set in Q2 2010. Additionally, the number of transactions in the just-completed first quarter (881) also set a new record.
     
    And yet even without the landmark telecom deal, Q1 deal flow was surprisingly strong, particularly in March. Excluding AT&T’s planned purchase of T-Mobile USA, the quarterly spending total was higher than both the preceding Q4 2010 and the year-earlier Q1 2010. Most of that, however, was due to a flurry of activity in March, which saw spending at more than twice the monthly rate of the previous half-year and the highest level since last summer. (Again, that’s backing out the $39 billion that AT&T is set to spend on T-Mobile USA, a deal that was announced on March 21.)
     
    As the gigantic telecom transaction illustrates, M&A is an inherently lumpy business. So projecting annual totals from a single quarter’s activity doesn’t necessarily make for a reliable forecast. Nonetheless, we would note that the start to 2011 puts it on track for nearly $340 billion in spending for the year. If it comes in at roughly that level, it would mark the highest annual spending total in four years and would not be too far from the level in 2005, just before tech M&A set off on a two-year record run.
     
     
    U.S. Local Digital Ad Revenues to Nearly Double to $42.5B by 2015 from $21.7B in 2010
     
    Local advertisers continue their steady migration to digital media platforms, according to BIA/Kelsey’s U.S. Local Media Annual Forecast (2010-2015). BIA/Kelsey, a research and advisory firm to companies in the local media industry, expects online/interactive advertising revenues to climb to $42.5 billion by 2015, almost double 2010’s $21.7 billion, representing a compound annual growth rate (OTCPK:CAGR) of 14.4 %. This growth coincides with anticipated improvement in the U.S. economy and a continued rise in overall local advertising, which the firm expects will reach $153.5 billion in 2015, up from $136.3 billion in 2010, representing a 2.1% CAGR.
     
    As digital media — delivered to consumers through mobile, Internet or other electronic methods — continues to gain traction with local advertisers, BIA/Kelsey predicts it will represent 23.6% of all local ad spending by 2015.
     
    “As the business climate improves and advertisers step back into the market, they are gravitating to digital options that perhaps were not as mature before the recession began,” said Tom Buono, chief executive officer, BIA/Kelsey. “Our analysis indicates that as advertisers move to online, mobile and, particularly, the variants of social media, we are fast approaching a tipping point where digital media will soon become a dominant segment of the local advertising marketplace.”
     
    BIA/Kelsey reports among the key drivers of this year’s forecast are:
     
    • The increased number of smartphones and tablets is already playing a role in affecting revenue shares earned by traditional media.
    • Continued significant newspaper revenue erosion will drive pay walls and other creative approaches for rebuilding revenue base.
    • Intense political advertising and uptick in national advertising lifted television and other media revenues in Q4 2010, increasing prospects for the forecast period.
    • The interactive/online sector continues to advance and multiply with new formats such as social and mobile.
     
    BIA/Kelsey’s U.S. Local Media Annual Forecast also notes that social forms of digital media are increasingly becoming an important component of online revenues. Consumer spending on deal-a-day offers, which the firm expects will grow to $3.9 billion by 2015, illustrates an expanding market that includes Facebook and Twitter. (Source: BIA/Kelsey)


    For the complete report, including tables (free download), go to:  www.techmediamergers.com
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  • --- DMD, to see: -EPS: -2.86 !!! Q1or Q4 up ?! Truth?
    20 Apr 2011, 10:50 AM Reply Like
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