JEGI Q3 2013 M&A Overview: Smaller Strategic Transactions Driving M&A Activity
New York, NY October 3, 2013 – Mergers and acquisitions in the media, information, marketing and related technology sectors during the first three quarters of 2013 saw 1,057 transactions announced at a total value of $67.5 billion. The $21.9 billion Publicis/Omnicom merger drove total deal value up, but without that blockbuster announcement, 2013 YTD deal value decreased 23% on roughly the same volume of transactions as the prior year. Smaller deals by strategic company acquirers dominated, with 93% of transactions under $100 million in value, according to The Jordan, Edmiston Group, Inc. (JEGI) (www.jegi.com), the leading independent investment banking firm specializing in M&A advisory services across these core markets.
Through Q3 2013, strategic acquirers accounted for 84% of announced transactions in the media, information, marketing and related technology sectors, with private equity firms as buyers for the remaining 16%. Strategics are actively acquiring in order to transform business models, to fill holes in capabilities, services and product lines, and to enter new markets.
2013 has seen 11 deals with $1+ billion in value, with five deals coming in Q3; this compares to eight deals through Q3 2012. However, as presented by JEGI Founder & CEO Wilma Jordan at Outsell’s 2013 Signature Event, co‐hosted by JEGI, average deal size in 2013 dropped compared to 2012 levels. Many companies lack the confidence in today’s business environment to consummate sizeable transactions, which in many cases are needed for business transformation, especially now.
Through the third quarter of 2013, average deal size was $43.2 million (not including the $21.9 billion Publicis/Omnicom merger), down from $52.3 million during the same period in 2012. For the other deals over $1 billion, average deal size dropped 44.1% down to $1.66 billion this year. Declining by 2.4%, average deal size for those between $100 and $999 million was $280 million, compared to $287 million in 2012. For deals under $100 million, average deal size remained flat at $13 million.
Deals of Size
$1+ billion transactions through Q3 2013 include the:
- $21.9 billion merger of Publicis Groupe and Omnicom Group to create the largest global ad agency (by revenue);
- BC Partners acquisition of a majority stake in academic publisher Springer Science & Business Media for $4.4 billion;
- Salesforce.com acquisition of ExactTarget, a provider of cross‐ channel digital marketing SaaS solutions, for $2.25 billion;
- Baidu acquisition of 91 Wireless Websoft, a major developer of app stores in China, for $1.8 billion;
- IHS acquisition of R.L. Polk & Co., a provider of automotive intelligence and marketing solutions, for $1.4 billion;
- Google acquisition of Waze, a social mobile application that enables drivers to build and use real‐ time road intelligence on smartphones, for $1.3 billion;
- Funke Mediengruppe acquisition of Regional Newspapers, TV Program Guides & Women’s Magazines from Axel Springer, for $1.2 billion;
- Kohlberg Kravis Roberts acquisition of Mitchell International, provider of technology, connectivity, and information solutions to the property and casualty claims and collision repair industries in North America, for $1.1 billion;
- Yahoo acquisition of Tumblr, an online platform that enables users to share text, photos, quotes, links, music, and videos across any channel, for $1.1 billion;
- SAP acquisition of Hybris, a vendor of multi‐channel communication and commerce software solutions, for over $1.0 billion, according to The Wall Street Journal; and
- Roper Industries acquisition of Managed Healthcare Associates, provider of pharmacy solutions and data analytics for long‐term care and other healthcare providers, for $1.0 billion.
We expect the M&A market to continue to be dominated by small strategic transactions, due to the uncertain environment in the US caused by political gridlock, a sluggish economy, and the implementation of Obamacare and numerous other government regulations. Larger transactions will likely focus on aggregation and consolidation among mature or legacy companies (for example, Publicis/Omnicom; Nielsen/Arbitron; Gannett/Belo; Dentsu/Aegis), due to the low growth economy, coupled with rapid technological changes, with most management teams and boards of directors somewhat reluctant to pursue significant transformative deals.
Technology will continue to challenge existing company models. For instance, consider how Angie’s List and Yelp are affecting the yellow pages industry; how LinkedIn is challenging traditional job boards; and how proliferating Internet news sources are strongly competing against the traditional news industry.
Additionally, marketing automation will accelerate and continue to remake the marketing services landscape. This leads us to wonder which company will be the global advertising and marketing agency of the future – WPP, Publicis/Omnicom, Dentsu? Or, Accenture, Adobe, IBM? It will be interesting to see how the marketing and technology companies continue to intersect going forward.
M&A Highlights through Q3 2013
Transactions for the b2b online media and technology sector decreased by 24%, down to 53 deals in the first three quarters of 2013 vs. the same period in 2012. Deal value dropped sharply, by 97%, due to the $7.1 billion Alibaba Group/Yahoo transaction in 2012. Notable deals in Q3 2013 included: Zillow’s acquisition of StreetEasy, a real estate site listing properties for sale, for $50 million; OpenTable’s acquisition of Rezbook, online restaurant reservation and table management system, for $12 million; and Go Daddy’s acquisition of Afternic.com, an Internet site for exchanges and online auctions of domain names.
Although down in number of deals and value, 13% and 14% respectively, from 2012, the b2c online media and technology sector was still very active in the first three quarters of 2013, with 169 transactions and $5.3 billion in value. Q3 2013 saw a few notable deals, including: Tencent Holdings’ acquisition of a 37% stake in Sogou, a Chinese online search engine, for $448 million; Rakuten’s acquisition of Viki, a video site that offers premium TV, movies and music videos that are made globally accessible via crowdsourced subtitling, for $200 million; Blucora’s acquisition of Monoprice, an e‐commerce retailer of cables, electronics, and electronic accessories, for $180 million; and Baidu’s acquisition of a 59% stake in Nuomi Holdings, a leading provider of group‐buying services, for $160 million.
M&A activity for the business‐to‐business media sector increased considerably in the first three quarters of 2013, with 29 transactions valued at $423 million, representing 21% and 80% increases, respectively, over the same period of 2012. In Q3, notable transactions included: Newcastle Investment Corp.’s acquisition of Dow Jones Local Media Group, which operates print and online community media franchises, from News Corporation for $82 million; Wilmington Group’s acquisition of Compliance Week, publisher of information on corporate governance, risk, and compliance for financial, audit, and compliance executives, for $14.2 million; and Penton Media’s acquisition of Aviation Week, publisher of magazines and briefings in the areas of aviation, defense, and space, from McGraw Hill Financial.
The consumer magazines sector remained flat in number of transactions, with 36 deals so far in 2013. However, deal value rose exponentially by 607% to $1.7 billion, mainly due to Funke Mediengruppe’s $1.2 billion acquisition of Regional Newspapers, TV Program Guides & Women’s Magazines from Axel Springer. Other deals of note in Q3 2013 included: Time’s acquisition of American Express Publishing Corporation, publisher of lifestyle magazines, for nearly $100 million; OpenGate Capital’s acquisition of Harte‐Hanks’ Shoppers division, including the PennySaver print and digital marketing brand, for $22.5 million; and FT Media Holdings’ acquisition of Furniture Today, publisher of a weekly newspaper, daily e‐newsletters, and six other print and online publications for the furniture industry, for an undisclosed sum.
The database and information services sector saw a 12% increase in the number of deals to 47), but a significant decline in the value, down 35% to $4.5 billion, due to the $3.3 billion take‐private of Transunion by Advent International and GS Partners in early 2012. Notable Q3 deals included: Kohlberg Kravis Roberts’ $1.1 billion acquisition of Mitchell International, FactSet Research Systems’ acquisition of Revere Data, provider of datasets, analytics, and indexes for the financial services industry, for $15.4 million; and SAP’s acquisition of KXEN, provider of predictive analytics solutions for business users.
The education information, technology and training sector grew significantly in the first three quarters of 2013 vs. the same period of 2012, up 50% in number of deals to 63 and 321% in value to $5.9 billion, driven by BC Partners’ $4.4 billion acquisition of a majority stake in Springer Science & Business Media earlier this year. Notable deals in this quarter included: TPG Capital’s acquisition of TSL Education, a digital education company, for $549 million; Providence Equity Partners’ acquisition of five corporate training businesses from Informa for $180 million; and Pluralsight’s acquisition of Train Signal, provider of online IT training, for $23.6 million.
The exhibitions and conferences sector saw increases in both number of deals (up 18%) and value (up 253%) in the first three quarters of 2013 compared to 2012. The jump in value was driven by last quarter’s $950 million Onex Corporation acquisition of Nielsen Expositions (a JEGI transaction) and this quarter’s $908 million Vista Equity Partners acquisition of Active Network, a provider of event management software. Other notable Q3 transactions included the sale of Reed Exhibitions’ US restaurant and lodging portfolio, which includes the Florida Restaurant & Lodging Show, Western Foodservice & Hospitality Expo and Expo Comida Latina, to Urban Expositions (a JEGI transaction); and the sale of New York State Restaurant Association’s International Restaurant and Foodservice Show of New York to Urban Expositions (a JEGI transaction).
The healthcare information and technology sector was the third most active sector (in terms of number of deals) and the second largest sector (in terms of deal value) in the first three quarters of 2013, with 157 transactions at a total value of $7.4 billion. Compared to the same period in 2012, the number of transactions rose by 31%, while the value decreased by 16%. Notable deals for Q3 2013 included: Vitera Healthcare Solutions’ acquisition of Greenway Medical Technologies, a provider of technology solutions and managed business services to ambulatory healthcare providers, for $643.6 million; Zotec Partners’ acquisition of Medical Management Professionals, a provider of billing, financial, administrative and strategic management services to physicians, for $201.6 million; and Medtronic’s acquisition of Cardiocom, a developer of telemonitoring products and services for heart failure, pulmonary disease, and other complex conditions, for $200 million.
Although slightly down in number of deals, the marketing and technology sector continues to be the most active overall in both number of deals and deal value in 2013 YTD, with 348 transactions announced at a total value of $34.2 billion, or $12.3 billion before the $21.9 billion Publicis/Omnicom merger. Q3 saw several $100+ million deals, including the Publicis/Omnicom merger and SAP’s $1.0 billion acquisition of Hybris. Other notable deals in the quarter included the:
- Adobe acquisition of Neolane, a provider of enterprise marketing software, for $600 million (announced late June);
- Extreme Reach acquisition of Digital Generation’s TV Business and Advertising Distribution Business Unit for $490 million;
- AOL acquisition of Adap.tv, a provider of technology to connect video advertising buyers to sellers on a single platform; for $405 million;
- Apollo Global Management acquisition of Pitney Bowes’ Management Services Business, which provides document outsourcing services, including direct mail, call center communications, digital channel messaging, etc., for $400 million;
- Thoma Bravo acquisition of Keynote Systems, a provider of mobile and Web cloud testing and monitoring services, for $398.7 million;
- William Morris Endeavor Entertainment acquisition of a 49% stake in Droga5, an advertising agency, for $225 million;
- Platinum Equity acquisition of CBS Outdoor Limited, a provider of out‐of‐home media advertising services, for $225 million;
- Cineplex acquisition of EK3 Technologies, a digital media company that provides SaaS‐based customized in‐store digital merchandising solutions, for $113 million; and
- Lee Equity Partners acquisition of Cross MediaWorks, a multi‐platform media company, for an undisclosed sum.
Mobile media and technology remains hot, and deal value continues to increase. Through Q3 of 2013, this sector saw a 5% increase in number of transactions to 110 deals and an 84% increase in deal value to $5.5 billion, fueled by Baidu’s $1.8 billion acquisition of 91 Wireless Websoft, and Q2’s $1.3 billion Google acquisition of Waze. Other notable Q3 deals included: Twitter’s acquisition of MoPub, a mobile ad exchange that helps mobile publishers manage their ad inventory, for $350 million in pre‐IPO stock; Millennial Media’s acquisition of JumpTap, a targeting platform that provides audience‐centric advertising solutions to reach mobile users, for $261 million; and Hasbro’s acquisition of a 70% stake in Backflip Studios, a developer of iPhone games, for $112 million.