Gridley presented at the DFJ Gotham Annual Meeting on May 17, 2012. The presentation discussed how traditional industry leaders are highly vulnerable due to unprecedented innovation in areas like cloud computing, new business models, and open source/architecture. Gridley noted that over $130 billion of value has been created in just 3 years through this rapid innovation. The presentation analyzed M&A activity among both traditional and emerging technology companies. Gridley advised sellers to be realistic about pricing and pursue strategic integrations with potential acquirers.
4. Unprecedented Time for Enormous Value Creation
• Traditional Industry leaders are highly vulnerable like never before
Open Source Open Architecture Cloud Computing New Business Models
• Innovation at record speeds – Approximately $130 Billion of value created in 3 years
4
5. Gridley’s Message on Innovation in Tech Today
Traditional Ad Agencies vs. Ad Tech Traditional Media vs. SocialinNetworks
Comparative Equity Values ($ billions)
Comparative Equity Values ($ in billions) Legend
Legend Traditional Leaders
Traditional Ad Agencies $70 Emerging Innovators
Performance Based Marketing
$200
Emerging Threats $40.1
$73.0
Equity Value
$30
Equity Values
$70 $208.7 $32.4
$182.3
$20
$30 $73.0
$11.9
$12.7 $10.7 $11.7
$8.0 $7.1
$11.0 $4.7 $10.7 $9.4
$3.9 $6.2
$0.6 $3.2
$0.8 $2.7 $6.0
$0.9 $0.4 $1.1
$0 $0
0.0x $2.2 5.0x 10.0x 20.0x 0.0x 7.5x 15.0x 22.5x 50.0x 57.5x
$0.4 $1.0
$1.2 Revenue Multiple
$0.5 $1.6 $0.4 Revenue Multiple
Retail vs. Ecommerce Emerging Companies vs. Traditional Big Data
Traditional Retail
($BN) E-Commerce
Legend
$200
$200 Traditional Leaders
$185.2 $208.7 Emerging Innovators
$45
$44.6
Equity Value
Equity Value
$101.2
$100 $12
$12.1
$10.2
$50
$42.4
$34.6 $4.7
$6 $9.4
$34.9
$4.1
$10.4
$14.7
$8.4 $3.2
$3.4
$1.4 $0.9 $1.5
$0.6 $2.0 $0 $0.5 $0.6
$7.9 $0
0.0x 4.0x 8.0x 12.0x 0.0x 1.0x 2.0x 3.0x 4.0x
$0.4 Revenue Multiple
$1.0 Revenue Multiple Sources: Second Market and CapIQ as of November 25, 2011.
2011
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6. The New “Kids” on the Block
Value Today Revenue
Company Year Founded IPO Date # of Employees
(Billions) (Billions)
2009 NA $4,000(1) NA NA
2008 Nov 2011 $7,605 $1,610 11,471
2007 NA $1,000(1) NA 75
2007 Dec 2011 $5,850 $1,218 2,846
2006 NA $10,700(1) NA 141
2004 May 2012 $100,000(1) $4,038 3,539
2002 May 2011 $11,415 $617 2,447
Older Brothers/Sisters
1998 Aug 2004 $197,320 $38,875 33,077
1995 Sep 1998 $52,604 $12,383 27,770
Source: CapIQ. Company filings.
(1) Estimated value.
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7. How New Kids Are Thinking About & Doing M&A
• Strategic value orientation not traditional financial metrics
• Tech and team focus – early stage deals
• Stock = big component of transaction
• Much more comfortable thinking across capabilities (advertising, commerce,
social, analytics, payments) as these disciplines converge
• Foster early relationships with entrepreneurs and boards that back them
What New Kids Are Acquiring
7
8. When New Kids Grow Up – eBay Case Study
eBay made a series of acquisitions, most notably of PayPal, GSI Commerce, Red Laser, Zong, and Milo,
that enabled eBay to become a front-runner in the race to become the next generation in-store leader
Discover Pay
Retailer Nearby
Used, online
In-store Online
scanner retail
Virtual goods
Mobile
Location-
based service
Better
Local Retailers
Merchandising
/ SMB
At Home
Nearby
Used, online
Any product
Online retail
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9. A Word About Other Buyers – Traditional Industry
Leaders
• Record levels of cash / business performing well
• Need to get their attention for M&A
• Conservative approach – not “stretch” / not “bet the bank”
• Fair pricing if interested
• Must be a logical fit – minimal “out-of-the-box” thinking
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10. A Word About Other Buyers – Later Stage Growth
PE Firms
• Very aggressive
• Looking for market leadership, good growth, experienced management
• Frequently able to compete on price with strategic buyers
• Plenty of “dry powder” on hand
Fundraising Has Outpaced Investing YTD
$120
2011
$97.6 $98.7
$100 Q1 2012
$80
$ in billions
$60
$40 $29.6
$20 $12.9
$0
Deals Completed Funds Raised
Source: Buyouts.
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11. A Word About the New York Scene
• New York has become #2 tech hub behind SF Bay Area
• NEA & Accel building presence through new offices in New York
• New York “core competencies” a target focus for buyers
– Brands and consumer retail
– Advertising / Madison Avenue
– Financials / payments
• Serial entrepreneur cycle – team members of formerly acquired companies leave
to start new companies
– Dodgeball / Foursquare
– DoubleClick Mafia
11
12. Top 10 Private Digital NY Sale Transactions
January 2008 – December 2011 (Disclosed deals / rumored pricing available)
Transaction
Date Acquirer/Target Value (in $M)
1) 06/15/2011 $524
2) 06/13/2011 400*
3) 02/06/2011 315
4) 01/19/2011 296
5) 02/03/2010 225
6) 01/25/2010 200*
7) 09/08/2011 151
8) 06/17/2010 135
9) 08/05/2008 125
10) 09/07/2010 120
Source: Capital IQ, TechCrunch, public filings, and press releases. *rumored value
12
13. Advice for Private Company Sellers / VCs with
Companies They Want to Sell
• Decent market for good companies – “Flight to Quality”
• Lots of lower-quality companies / deals not getting done
• Be realistic about price unless most likely buyer is a “New Kid” – otherwise buyers
care about earnings and traditional valuation metrics
• Be cautious of the speed at which market and buyer tone changes (e.g. ad tech)
• When speaking to likely acquirers, stay close to acquirer’s product management
team vs. focusing only on corporate development
• Keep likely acquirers abreast of material company events such as fund raisings
• Actively pursue strategic integrations with likely acquirers
– Overlapping customers and/or integrated offerings go a long way
• Keep track of M&A heavy-hitters, who often times move to other companies
– Former Google M&A head Jason Harinstein now at Groupon
– Former Yahoo! M&A head Andrew Siegel now at Condé Nast
13
17. Gridley Overview
Gridley & Company, a New York-based boutique investment bank, provides advisory
services to companies in the Information Services industry
Gridley & Company
Leading Boutique • Sharp focus provides clients with valuable strategic insights and perspectives
• Specialize in Internet Services, Digital Media & Marketing Services, Data
Services, Financial Technology, and SaaS & Outsourcing Services
• Founded in 2001
• Headquartered in New York, NY
Strong Reputation • Strong industry reputation on assignments led by senior bankers
• Experienced, bulge-bracket trained M&A bankers – The “A” Team
Trusted Advisor • Thoughtful ideas – not just logical combinations
• Deliver value to buyers, sellers, and investors alike
• Broad industry network developed over 25+ years with industry leaders,
emerging growth companies, and senior investors
17
18. Interested in Other Gridley Resources?
• Available at www.gridleyco.com/what-we-think/resources/
eCommerce Mobile POS Ad Tech
Measurement Digital Content Digital NY Quarterly Newsletter
18
19. QUESTIONS?
Linda Gridley
President & CEO
212.400.9710
linda.gridley@gridleyco.com
Gridley & Company LLC
10 East 53rd Street, 24th Floor
New York, NY 10022
212.400.9720 tel
212.400.9717 fax
Twitter: @gridleyco
www.gridleyco.com