JEGI's managing director takes a look back at merger and acquisition activity in the interactive industry last year.
This is the first installment of the JEGI Interactive Deal Tracker at iMedia Connection, a monthly overview of M&A (merger and acquisitions) activity in online content, services and related technology. The data is compiled from public, private and confidential sources by The Jordan, Edmiston Group (JEGI). Each month we will update deal flow, drill into a few of the most interesting -- but not necessarily the largest -- and comment on trends that we expect to drive more transactions going forward.
We will focus mainly on companies that sell in the $20 million to $500 million range, and won't spend much time on the blockbuster deals, which are amply covered elsewhere. We are most interested in the "building block" businesses with revenues from $5 million to $100 million that are creating new content, developing new revenue models, and rolling out the innovations that drive the industry and ultimately combine into larger media companies.
Here is our first chart showing M&A activity across the past two years:
As the chart shows, 2005 was a big year in online M&A with over $15 billion of transactions announced, double the 2004 deal total. The key theme of the past couple of years has been "picks and shovels," with many acquisitions of companies that provide services and technology to monetize web traffic: search, ad networks, lead generation, aggregation, rich media and video and so forth. The fourth quarter of 2005 provided a number of interesting deals along this theme:
- PriceGrabber sold to consumer database giant Experian for $485 million, or eight-times revenue, an unreal price
- Moreover, a long-time innovator in aggregation and metadata, folded into internet infrastructure builder VeriSign for $30 million
- del.icio.us, a content tagging service that I had almost figured out, picked up by Yahoo! for an undisclosed amount
We saw less action in 2004 and early 2005 in pure online content and audience businesses -- a gun shy set of strategic and private equity buyers wanted to know whether online publishing could generate more revenue from online eyeballs than the cost of audience acquisition (a bit of math ignored in the 2000-era bubble).
Fast forward. With healthy online advertising, the answer to the math question is "yes," and the market for online content businesses is gaining momentum. 2005 saw the start: About.com and MarketWatch traded, along with MySpace, IGN and iFilm. Looking into 2006, we expect to see much more activity in the sale of mid-sized online content and audience businesses. Especially video.
We welcome your comments and you can reach me (Tolman Geffs) via www.jegi.com.
Tolman Geffs is a managing director with The Jordan, Edmiston Group, an investment bank focused on the media and information industries. You should assume that Tolman or his firm will seek investment banking business with companies mentioned.