JEGI Q3 2014 M&A Report: M&A Market Sees Increase in Mega Deals
New York , NY October 2, 2014 – The media, information, marketing and technology sectors saw 1,128 transactions worth $94 billion announced in the first three quarters of 2014. Deal volume increased slightly over 2013, but Facebook’s $19 billion acquisition of mobile messaging app WhatsApp in Q1 and several other mega transactions drove deal value to more than double 2013’s $45 billion, according to The Jordan, Edmiston Group, Inc. (JEGI) (www.jegi.com), the leading independent investment bank specializing in M&A advisory services across these core markets.
Although a majority of transactions have price tags under $50 million, we are seeing a sharp uptick of larger deals in the M&A market. The first three quarters of 2014 saw 35 transactions over $500 million in value, compared to only 17 large deals through Q3 2013. There was also a strong increase in the number of deals between $50 million and $500 million in value, with 155 of such middle-market deals so far in 2014 vs. 110 in the same period last year.
Large Deals Through Q3 2014
- Carlyle Group acquisition of Acosta Sales & Marketing, provider of outsourced sales and retail merchandising services to CPG brands and retailers, from Thomas H. Lee Partners for $4.7 billion in July;
- CVC Capital Partners and Leonard Green & Partners acquisition of Advantage Sales & Marketing, another CPG sales and marketing agency, from Apax Partners for $4 billion in June;
- Cognizant Technology Solutions acquisition of TriZetto, provider of information technology and service solutions for health plans, hospitals and healthcare systems, for $2.7 billion in September;
- Priceline acquisition of restaurant reservation solutions provider OpenTable for $2.6 billion in June;
- Gannett acquisition of a majority stake in Classified Ventures, operator of Cars.com, an automotive classifieds business, in a deal valued at approximately $2.5 billion in August;
- Alliance Data Systems acquisition of digital marketing and technology group Conversant for $2.4 billion in September;
- Charterhouse Capital Partners acquisition of SkillSoft, a provider of on-demand training and e-learning solutions, for a reported $2.3 billion in March;
- Berkshire Partners acquisition of a majority stake in Catalina Marketing, a provider of data-driven marketing solutions to CPG brands and retailers, in a deal valued at approximately $2.5 billion in March;
- Cox Enterprises acquisition of a 25% stake in AutoTrader Group, a digital automotive marketplace for car shoppers and sellers, for $1.8 billion in January;
- Cerner Corporation acquisition of healthcare information technology solutions provider Siemens Health Services for $1.3 billion in August;
- KKR acquisition of Internet Brands, operator of media and e-commerce sites related to consumer purchases, from Hellman & Friedman for $1.1 billion in June;
- Hellman & Friedman acquisition of a majority stake in Renaissance Learning, a provider of computer-based assessment technology and school improvement programs, for $1.1 billion in March;
- Rakuten acquisition of Ebates Performance Marketing, provider of online shopping rebates, for $1 billion in September; and
- Relativity Media acquisition of Fullscreen, a digital media company that builds next-generation channels and networks on YouTube, for nearly $1 billion in May, according to several sources.
Debt Markets Help Drive Large M&A Transactions
According to GE Capital, volume in the debt markets January through August 2014 surpassed all of 2013, with 157 collateralized debt obligations totaling $85 billion. For companies with over $10 million in EBITDA, total leverage is up to 6x EBITDA on middle-market deals, with 4.5x of senior debt and 1.5x of mezzanine debt. Leverage can reach even higher on large transactions for businesses with strong growth, high quality assets and business models, such as those with recurring revenue driven by data or software. The availability of debt helps drive M&A activity, especially in larger transactions, as we have seen so far this year. If the economy continues to grow, investor demand for yield is expected to remain robust, with vibrant debt markets continuing into early 2015. This is good news for the M&A market.
Barring a major destabilizing event, we expect the US economy to remain steady. The Fed has pumped unprecedented amounts of liquidity into the US economy, and the US stock market has soared with this infusion of capital, and in turn the stock market is an excellent leading indicator.
We are also pleased to see that Asian buyers are finally starting to acquire “soft” assets in the US. Asian buyers have purchased real estate in the US for decades and European companies have long been acquirers of content and intellectual property in the US, but now we see Asian companies stepping up to acquire companies in the media and marketing services space. Over the past few months, we have seen the Hong Kong-based Integrated Whale Media Investments acquire Forbes Media, Chinese marketing agency BlueFocus buy industrial design studio fuseproject, and Japanese e-commerce conglomerate Rakuten pick up Ebates Performance Marketing. We expect this trend to continue.
With a stable economy, strong debt markets and healthy competition in the market, we expect M&A activity to remain strong for both strategic and private equity buyers.
M&A Highlights Through Q3 2014
Deal volume in the b2b online media and technology totaled 55 transactions during the first three quarters of 2014, a 4% increase over the same period in 2013. Deal value increased sharply, to $2.0 billion, driven by Walt Disney’s acquisition of Maker Studios for up to $950 million in Q1 2014. Notable transactions in the third quarter of 2014 included the: Stratasys acquisition of GrabCAD, a community for engineers to share talent, expand knowledge, find projects, and work with tools and features, for a reported $100 million; Mergermarket acquisition of Law Report Group, publisher of “The Hedge Fund Law Report” and “The FCPA Report”, two online B2B publications, for an undisclosed sum; and YourMembership.com (a portfolio company of Riverside Company) acquisition of JobTarget, provider of job boards software and solutions for professional and trade associations, for an undisclosed amount.
Although b2c online media and technology was the third most active sector in deal volume through September, with 135 transactions, volume declined 20% vs. 2013’s 169 deals. Deal value, however, rose substantially, to a total value of $14.4 billion, due to Cox Enterprises’ $1.8 billion acquisition of a 25% stake in AutoTrader Group in January; Priceline’s $2.6 billion acquisition of OpenTable in June; and Gannett’s acquisition of a majority stake in Classified Ventures, valued at $2.5 billion, in August. Other notable deals in Q3 2014 included: Amazon’s $970 million acquisition of Twitch Interactive, a video platform and community for gamers; News Corp’s $950 million acquisition of Move, an online network of web sites for real estate search that brings consumers and realtors together to facilitate the sale and rental of real estate in the US; and Apax Partners’ acquisition of a majority stake in Answers Corporation, an online community with answer-based search services, valued at $900 million.
While deal volume in the business-to-business media sector remained flat, deal value increased more than 4x in the first three quarters of 2014 vs. the same period in 2013, up to $2.1 billion, with Apax Partners’ acquisition of a 50% stake in Trader Media for approximately $979 million in January, and the $417 million Wasserstein & Co. acquisition of ALM Media in June. Notable deals in Q3 2014 included the: Shamrock Capital acquisition of Questex Media Group, a leading global business information and events company, for approximately $120 million; Informa acquisition of VIRGO Publishing, a B2B information services company specializing in print and electronic media, trade shows, special events, education and training, and business services, for an estimated $100 million; and Penske Media acquisition of Fairchild Fashion Media, provider of fashion news and analysis in print and online, for a reported $100 million
The consumer magazines sector slowed in the first three quarters of this year with 24 transactions, compared to 36 in the same period of 2013, and deal value down 74%, to $447 million, due to Funke Mediengruppe’s $1.2 billion acquisition of regional newspapers, TV program guides and women’s magazines from Axel Springer in 2013. Notable Q3 2014 deals included Axel Springer’s acquisition of Car&Boat Media, publisher of print and online ads for resale of used motorbikes, trailers and boats, for $98 million, and Integrated Whale Media Investments’ acquisition of Forbes Media, which is focused on strategy, marketing, technology, talent management, financial benchmarking, and risk and regulation issues.
Deal volume in the database and information services sector rose 13% in the first three quarters of 2014, with 53 transactions, compared to the same period in 2013, and deal value dropped 13% to $3.9 billion. Notable deals in the third quarter of 2014 included the: Intercontinental Exchange acquisition of SuperDerivatives, provider of cloud-based derivatives data, technology and valuation services for the financial and commodity markets, for $350 million; Symphony Technology Group acquisition of McGraw-Hill Construction Information Group, provider of essential data, news, insights and intelligence to construction professionals, for $320 million; Vista Equity Partners acquisition of AGDATA, provider of strategic data and analytical solutions to agricultural crop protection and animal health manufacturers, for an undisclosed amount; and Leeds Equity Partners control equity investment in Covenant Review, a leading independent provider of proprietary financial research and analytics, for an undisclosed price (a JEGI transaction).
M&A activity in the education information, technology and training sector declined in both deal volume and deal value in the first three quarters of 2014 vs. the same period in 2013, with 59 transactions at $5.1 billion. Notable deals in Q3 2014 included the: Tutor.com acquisition of Princeton Review, provider of in-person, online and print education products & services for the high school and post-secondary markets, for an undisclosed sum; Blackboard acquisition of Perceptis, provider of help desk support, strategic enrollment management, customer support and business intelligence services to higher educational institutions and corporations, for an undisclosed amount; Social Studies School Services acquisition of the school assets of Nystrom, publisher of educational maps, globes, atlases, hands-on programs and technology for students and teachers from grades K-12, from Herff Jones (a JEGI transaction); and Replogle Globes Partners acquisition of the Replogle Globes division of Herff Jones, the leading brand of geographical globes and maps sold to retailers throughout the world (also a JEGI transaction).
The exhibitions and conferences slowed in the first three quarters of this year with 35 transactions, compared to 45 in the same period of 2013. Deal value dropped significantly, down to $434 million, due to the $950 million Onex acquisition of Nielsen Expositions in 2013 (JEGI advised Onex in this deal). Notable transactions for Q3 2014 included the: Euromoney Institutional Investor acquisition of The Investing in African Mining Indaba from Summit Professional Networks for a confidential price (a JEGI transaction); Global Experience Specialists acquisition of Blitz Communications, events services provider in the rental of audio-visual equipment in the UK, for $25 million; and United Service Companies acquisition of Security Management Group America, provider of security services for trade shows and public events in the US, for an undisclosed sum.
The healthcare information and technology sector, the second most active sector in terms of deal volume, increased by 15% in number of transactions in the first three quarters of 2014 compared to the same period in 2013, up to 181 deals. Deal value in the sector rose 79%, to $13.3 billion, due to Cognizant Technology Solutions’ $2.7 billion acquisition of TriZetto in September and Cerner Corporation’s $1.3 billion acquisition of Siemens Health Services in August. Other notable deals this quarter included the: Conifer Health Solutions acquisition of Springfield Service Corporation, a revenue cycle management and clinical documentation improvement company, for $235 million; MedAssets acquisition of Sg2, provider of market data and information to the healthcare industry, for $142 million; and Premier Healthcare Solutions acquisition of TheraDoc, developer of electronic surveillance systems for injury detection and prevention, for $117 million.
The marketing services and technology sector continues to drive heavy M&A activity, with 450 transactions and $29.8 billion of value through Q3 2014, a 30% and 137% increase over respective 2013 levels. The three largest deals of this quarter, also mentioned above, were the Carlyle Group acquisition of Acosta Sales & Marketing for $4.75 billion; the Alliance Data Systems acquisition of Conversant for $2.4 billion; and the Rakuten acquisition of Ebates Performance Marketing for $1 billion. Other notable deals in Q3 2014, which reflect the wide range of transactions and diverse buyer pool for this sector, included the:
- CBS Outdoor acquisition of Van Wagner Communications, provider of out of home branding and advertising solutions, for $690 million;
- Facebook acquisition of LiveRail, a monetization platform that provides online video advertising solutions, for an estimated $450 million;
- Salesforce.com acquisition of RelateIQ, an online relationship management platform that tracks and analyzes interactions, for $390 million;
- Blackhawk Network acquisition of Parago, provider of loyalty solutions, such as consumer rebates and promotions, employee rewards and recognition, sales and channel management, and prepaid cards, for $291 million;
- Telstra acquisition of a 75% stake in Ooyala, provider of online video management, publishing, analytics and monetization solutions, for $270 million;
- Rocket Fuel acquisition of [x+1], a programmatic marketing hub that enables brands to engage in conversations with consumers across a range of paid and owned online media, for $236 million;
- KKR acquisition of a 49% stake in Scout24 Schweiz, a network of online marketplaces, and Omnimedia, provider of online marketing services, from Ringier Digital for $175 million;
- LinkedIn acquisition of Bizo, a business audience marketing platform that targets professionals internationally, for $175 million;
- Lake Capital acquisition of Engine Group, provider of advertising and branding services, for approximately $169 million;
- RTL Group acquisition of SpotXchange, provider of performance based video advertising campaigns and targeting tools, for $144 million;
- Publicis acquisition of Nurun, a global design and technology consultancy, from Quebecor Media for approximately $114 million; and
- Catalina Marketing acquisition of Cellfire, provider of load-to-card digital coupons in the CPG market, for a reported $100 million.
The number of deals for the mobile media and technology sector declined by 3% in the first three quarters of 2014, as compared to the same period in 2013, down to 107 transactions. Deal value, however, climbed exponentially to $22.4 billion, due to the $19 billion Facebook/WhatsApp transaction in February. Notable Q3 2014 deals included the: Yahoo acquisition of Flurry, a mobile app analytics and data-powered advertising platform, for a reported $240 million; Samsung Electronics acquisition of home automation app SmartThings for approximately $200 million; and Twitter acquisition of TapCommerce, provider of mobile ad retargeting solutions, for approximately $100 million.