In this issue of JEGI’s Client Briefing Newsletter, JEGI provides highlights from the sixth annual Outsell Signature Event co-produced by JEGI and held October 3-5, 2012 at the Four Seasons Hotel in Hampshire, UK. This global conference brings together senior executive leaders from both strategic companies and private equity firms across the information industry. Also in this issue is an insightful article on successfully integrating digital acquisitions authored by Christopher Vollmer, Gregory Springs and Harry Hawkes of Booz & Co. JEGI provides excerpts from “The Social Media Ecosystem – Rise of Users, Intelligence and Operating Systems”, a report on social media prepared by Amir Akhavan, a JEGI Director and published by the Interactive Advertising Bureau (IAB). JEGI’s M&A update shows that deal activity reached impressive highs through the first three quarters of 2012, despite economic and political uncertainty. Smaller deals have dominated the market (91% of transactions were less than $50 million in value), and strategic companies were buyers on 85% of deals in 2012 through September, as they continue to invest in higher growth revenue streams and new services for their customers. JEGI also highlights its exceptional transaction experience across its core sectors, including the recent sale of InfoGroup’s OneSource to Cannondale Investments and GTCR; the sale of DMGT’s Evanta to Leeds Equity; and many others.

1. NOVEMBER 2012 Independent Investment Banking for Media, Information, Marketing Services & Technology
In This Issue... Outsell’s Signature Event: Break and Reset
2012 Outsell Signature Event . . . . . . . . . . .1
Outsell, the leading provider of market 2012 Information Industry Outlook
M&A Playbook 2.0 . . . . . . . . . . . . . . . . . . . .2
research and intelligence for the information
Ned May, Vice President & Lead Analyst,
The Economic Outlook . . . . . . . . . . . . . . . .3 industry, and The Jordan, Edmiston Group, Inc.
Outsell
(JEGI) collaborated on the sixth annual Outsell
The Social Media Ecosystem Report . . . .4 The information industry totals over $450
Signature Event titled “Break and Reset”, held
JEGI Q3 2012 M&A Overview & October 3-5 at the Four Seasons Hotel in billion in annual revenue. There continues to
Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Hampshire, UK. More than 150 thought lead- be steady growth in the industry, even in this
ers and experts from the international infor- fluctuating economy. The strongest growth
M&A Conversation . . . . . . . . . . . . . . . . . . .6
mation industry convened to discuss hot top- drivers over the next three years will be Search
Exceptional Transaction Experience . . . .8 ics and the future of business information. & Aggregation; Education & Training; and
Credit & Financial.
The Outsell event is the only global confer-
ence convening the leaders of both strategic In response to the 2012 Outsell CEO
JEGI hosted its second Emerging Company
Dinner of 2012 on September 13th at the 21 Club companies and private equity firms across the Benchmark Survey, information industry
in New York City. information industry. This year’s program CEOs reported that the average gross profit
was one of the best to date and included “off- margin (revenue minus cost of goods sold) for
the-record” keynote presentations from the information industry in 2011 was 50%, as
Martin Morgan, Chief Executive, DMGT; compared to 47% in 2010. The EBITDA
Blaise Simqu, President & CEO, Sage margin (earnings before interest, taxes, depre-
Publications; David Craig, President, ciation, and amortization) for 2011 was 16%,
Financial & Risk, Thomson Reuters; David and the net profit margin (EBITDA minus
Williams, Chairman & CEO, Merkle; Eileen interest and taxes) was 10% of total 2011 rev-
Gittins, Founder & CEO, Blurb; Ariel enue, showing steady profits in the industry.
Eckstein, Managing Director, LinkedIn The Outsell survey confirmed that content
(From left) Charles Teschner, EVP, Global Strategy, EMEA; and more. creation continues to be the primary cost cen-
McGraw-Hill; Anthea Stratigos, Co-Founder & ter for information companies. In 2011, con-
CEO, Outsell (moderator); Nadya Kohl, VP,
The opening speakers provided their outlook
Strategy & Business Development, Experian on 2013’s economy, key forecasts and trends tent creation cost companies 20% of revenue,
Marketing Services; Matt Egol, Partner, Booz & in the world of information and discussed followed by sales costs (15%), general and
Co.; and Scott Peters, Co-President, JEGI how M&A valuations continue to fare. administrative costs (12%), IT and technolo-
Excerpts from “on-the-record” presentations gy (8%), and audience acquisition (5%).
follow. (continued on page 5)
(From left) Emily DiMiceli, Chief Strategy Officer,
Financial & Risk, Thomson Reuters; Amir
Akhavan, Director, JEGI; Loic Moisand, Co-
Founder & CEO, Synthesio; Wilma Jordan,
Founder & CEO, JEGI; and Paul Sykes, Chief
Financial Officer, dmg Information Group
To subscribe to JEGI’s Client Briefing
Newsletter: http://tiny.cc/JEGI_Client_Briefing
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http://twitter.com/JordanEdmiston

2. M&A 2.0: A New Playbook for Successful Digital Acquisition Integration
By Christopher Vollmer, Greg Springs and Harry Hawkes, Booz & Co. nology, etc.) that will drive acquisition success as the “hard” ones (i.e.,
The digital marketing services space remains at the center of a verita- valuation, synergies, etc.).
ble shopping spree. Google, Oracle and Gannett are among the leaders 2. Speed is Critical They use speed as a strategic advantage, featuring
driving the pace of acquisition in the industry, picking up smart start- rapid decision making through frequent informal huddles to share
ups to secure valuable technology and bolster their learning and “call the next play.” They work from a
digital marketing offerings beyond online display and dynamic plan, prioritizing and reprioritizing based on
search advertising. In the first three quarters of 2012, new knowledge—an adaptive process that acceler-
the pace of acquisitions nearly doubled in the ates the integration. They use tools that are “function-
Marketing & Technology space, with 384 acquisitions al” rather than “pretty” (such as Excel and Word docu-
totaling more than $16 billion, according to Jordan, ments and Google Docs, as opposed to PowerPoint) to
Edmiston. collaborate and communicate. And perhaps most
It is not too surprising to see such an acquisition arms important, they make active—basically daily—use of
race. Digital media and technology players are under the 80/20 rule to focus their analysis and integration
enormous pressure from customers, competitors, and activities on those areas that really matter.
investors to innovate their offerings and business 3. Don’t Break the Operating Model These companies
models beyond a reliance on advertising models to preserve the acquired operating model, or at the very
accelerate revenue growth. This has led to an increas- least, they don’t “break” it. This gives special attention
ing reliance on high-stakes acquisitions, rather than to and provides support for employees of the acquired
organic growth, to rapidly establish new positions in company (perhaps an executive sponsor to act as a
the value chain, especially since small players are guide for operating in the new environment) and,
often the companies developing game-changing possibly, creating a specific plan for transitioning the
capabilities and talent. acquired operating model.
In a competitive deal environment, such quick deci- 4. Culture Matters They ensure that the informal fac-
sion-making – on both getting to “yes” to complete a tors that contributed to the acquired company’s suc-
deal and then moving to integrate and execute – has cess are not lost. This requires a recognition that the
become a critical competitive advantage. The old “soft stuff” around culture really matters. Talent in the
benchmarks for integration timelines – from four to acquired company can see the acquisition as not only
12 months – are no longer effective in an environment a validation but also an exit opportunity, and may
where acquisitions tend to be smaller and where buy- envision that ownership by a larger entity means
ers expect organizations to be fully integrated in less than 90 days. bureaucracy, low growth, and slowness. To combat this, successful
Combine this “need for speed” with the desire to preserve the acquired acquirers identify the key drivers of the acquired culture and organize
company’s capabilities, which often drive digital value creation, and it a team specifically charged with managing the cultural integration.
becomes clear that digital media and technology companies need a 5. Identify Proof Points Successful digital acquisition practitioners
more contemporary playbook for acquisition integration—a Digital demonstrate integration success externally to markets. One way this
M&A Playbook 2.0, if you will. can be done is to identify a short list of internal and external “proof
This new playbook avoids traditional post-merger integration efforts – points” that enable acquirers to build morale and prove integration
typically run under an approach that could be best described as heavi- success when these milestones are achieved.
ly structured, process-intensive, and inclusive – in favor of a “hurry-up 6. Retain Talent They retain, and smartly deploy, acquired talent.
offense” that emphasizes speed and bursts of highly concentrated Executives implementing this new approach to digital integration
activity to manage the integration process. This leads to better value know that retaining the right talent is critical. It is surprising how
retention in the acquisition and prepares the overall company to face many digital acquirers are not able to retain key leadership, so it is crit-
the market faster and with greater focus. ical to have a short-term talent plan that identifies key players and lays
Speed is only one in a series of critical features in the new digital M&A out a strategy to keep them.
playbook. This method requires the ability to interpret what is happen- The pace of change in the digital space and the high stakes for success
ing in real time, the recognition that every situation is different, and are driving the need for a truly different approach to integrations for
the right playbook to make decisions quickly, adapting to realities “on media and technology companies, yet the acquisition drivers should be
the field” as they evolve. It also requires a set of players who know how the same as for all deals that deliver premium returns: capability
to run the new approach and bring the requisite training, frameworks, enhancement. Capturing those premiums, however, requires more. It
methodologies, and decision-making to bear. requires understanding the need for speed in integration and the
Digital media and technology companies that have run a hurry-up importance of moving quickly and precisely in preserving the unique
offense in their acquisition integrations employ six key success factors aspect of the acquired company’s model that made the deal attractive
that enable them to avoid the pitfalls, such as founder disempower- in the first place. Those who remain convinced that the traditional,
ment and ambiguity over strategy, that are common in such integra- slow, and overly deliberate approach to post-acquisition integration is
tions and which can cause slow decision making. This approach has best will risk “breaking” the acquisition or innovating too slowly to win
been “game tested” in some recent high-profile digital acquisitions in the marketplace. And if that is the likely outcome, they may as well
and should be considered by any executive faced with leading or plan- stay on the sidelines. I
ning a digitally focused acquisition integration. About the Authors
Six Key Success Factors Christopher A.H. Vollmer, partner with Booz & Co. in New York, leads the firm’s glob-
al media and entertainment practice and advises clients in digital media, consumer
1. Invest in Due Diligence Top digital companies invest significantly in marketing, and digital technology. Gregory Springs, principal, specializes in business
due diligence up front, to clearly establish a good fit between compa- model transformation for content-focused media and entertainment companies.
nies. For many serial digital acquirers, like Google, due diligence is as Harry P. Hawkes Jr., partner in Cleveland, leads the firm’s global operations and per-
much about evaluating the “soft” factors (i.e., talent, quality of tech- formance improvement practice for the media and entertainment industries.
2 JEGI Client Briefing – November 2012

3. The Economic Outlook
Martin Wolf, Associate Editor & Chief After the second turning point, the western Prospects for the Future
Economics Commentator, Financial Times financial crisis, the global real rate of interest
Over the next few years, it is overwhelmingly
dropped to zero, and we moved into a proto-
A series of financial crises have enveloped the probable that the US will be the most dynamic
depression. The only reason we are not in an
globe over the past five years. We are worried of the big economies. A key reason is that the
actual depression is
about the health of finan- US is not export reliant. The next four years will
because of the powerful
cial systems worldwide “We are not living in a normal show the recovery that we hoped to see in the
monetary and fiscal
and, in particular, where last four. This will hold true under either presi-
the post-crisis western
world - it is a ‘contained stimuli in effect, stronger dential party; the election will not make much
than we have ever seen
economy is headed. depression’ world.” difference. Growth rates are likely to be in the
before in the history of
Although Asia represents 2-3% range, which is not a strong recovery
the world. This is not
the future of the global economy, the West under US standards, but is still positive. Three
coming to an end any time soon, as the US
accounts for half of the world’s economy percent growth is likely, since housing invest-
Federal Reserve recently announced an indefi-
today, even after the financial crises. ment in the US is picking up, which is a very
nite continuation of this unconventional mon-
important part of the US economy. In spite of
We are not as far along in a recovery as we etary policy. We are not living in a normal
anxiety and the unconventional monetary poli-
would have hoped, but there are a few encour- world – it is a “contained depression” world.
cies in place, inflation will remain contained; we
aging signs. From the last world war to the
are not on the brink of hyperinflation.
end of the last century, the growth rates of GDP in the “Great Recession”
developed countries, emerging companies and After the global GDP collapse in early 2009, a
the world as a whole were all very similar. synchronized recovery in all economies took
“...it is overwhelmingly proba-
Today, while the growth of developed coun- place, based on the financial and fiscal support ble that the US will be the most
tries is down, the growth of emerging coun- that was provided. Taking a look at current dynamic of the big economies.”
tries is up – they are growing approximately GDP of the G6 countries (the six largest devel-
3.5 times faster than the growth rate of the oped economies in the world), they are split Over the next few years, central bank interest
advanced countries. If this growth rate contin- into three groups. The first group consists of rates will remain very low. We will live in an
ues, the emerging world economy will double the US and Germany, which are the only two incredibly easy monetary environment for a
in size in 12 years. The relative size of countries that have GDP values slightly above long time. Countries with their own central
economies is changing at extraordinary speed. where they started before the financial crisis. banks, and Germany as the safe haven of the
It is reasonably assumed that this will continue, The US has been the most successful in terms Eurozone, will have low long-term bond rates;
with the growth being dominated by China. of GDP growth. The second group comprises however, the Eurozone countries with insolven-
France, Japan and the Eurozone as a whole. cy risks will not. Despite efforts of the
Global Real Rate of Return
This group’s members are fairly close to their European Central Bank, there remains a risk of
Taking a look at the global economy, there is a GDP levels before the crisis, but now their break-up in the Eurozone; it would cost trillions
great global macroeconomic disequilibrium. growth rates have gone completely flat. The of dollars to stop this. But we hope to see a
The single most important price in capitalism is third group consists of the UK and Italy, rebirth of confidence in the Eurozone, as politi-
the global real rate of interest, which is the rate which are again in decline. cians stand behind the Euro and capital flows to
of interest on safe government securities. We the periphery are renewed. I
are able to get a good picture of the global rate
by looking at the yield on index-linked govern-
ment bonds in the UK and the US. As theory GDP in the “Great Recession”
would suggest, they coincide very closely.
There have been two transformational tipping
points in the past 20 years: during the Asian
financial crisis in 1997 and then during the
western financial crisis in late 2008/early 2009.
After the Asian crisis, the global real rate of
return fell from almost 4% to 2% and never
rose again. This was when Asians, the most
dynamic part of the world economy, stopped
being capital importers and became huge cap-
ital exporters, changing the price of global cap-
ital drastically. The housing bubbles started
exactly at this time, and the real price of long-
term assets was thrown off-balance. Since that
collapse in the real rate of return, the domi-
nant feature in our financial system has been
to try to find safe ways to achieve higher return
than the market will actually give you. This is,
in aggregate, impossible. The global financial
system is operating in a savings surplus world,
and we have been absorbing savings very, very
badly. Source: Financial Times
JEGI Client Briefing – November 2012 3

4. The Social Media Ecosystem Report: Rise of Users, Intelligence & Operating Systems
#SMEcosystem
The following edited excerpts are from a report recently prepared by channels. The interactions also offer rich insights and relevance for tar-
Amir Akhavan (amira@jegi.com), who covers the Technology, Marketing geting (including email) and ROI measurement.
Services, and Interactive sectors at JEGI. Unified Technology Suites Flex Their Muscle A new ecosystem of pro-
To download a copy of the full report, which was prepared in collaboration graming applications has developed that manage internal and external
with the Interactive Advertising Bureau (IAB), please go to social operations. This programing application space is increasingly
http://slidesha.re/VzgmA8. All information sources are footnoted in the being dominated by full service Operating Systems with a unified tech-
full report. nology suite sitting in CRM. Social Media Management Systems (SMMS)
applications and buying platforms are becoming commoditized, as
Although social is only one part of the overall media mix, it is increasing-
increasingly robust functionality is built into Operating Systems that pull
ly impacting the framework of how organizations operate – from cus-
together the complex ecosystem, offering brands, marketers, and agen-
tomer service and R&D to HR and marketing.
cies full operational management. The transformation is evident among
large CRM and ERP providers, which have engaged in sig-
nificant organic and M&A investment, to integrate social
data and applications into their platforms.
Some key platform offerings include those for listening
(including throughout an organization); ad buying (for tar-
geted/segmented campaign execution to amplify earned
media); distribution and planning (to drive earned media
by leveraging channels, user communities and networks);
publishing/syndication (to push/schedule content through
social channels); data (to aggregate social API’s and con-
tent); attribution measurement (allocating credit for inter-
actions that drive desired engagement); analytics and
intelligence (bringing together listening, measurement
and buying capabilities to better understand and market
to users), among others.
CRM Drives the Conversation Salesforce.com has been a
pioneer in this space and believes that the rise of social
networking enabled employees and customers to find,
share and collaborate around information and business
processes. For the first time, companies can capture real-
time intelligence for customer relationship management
purposes, creating both issues and opportunities for CRM
providers in terms of accessing social data and developing
technologies to gain market insights.
Salesforce’s acquisitions, have enhanced the CRM platform with a social
New Social Subscription Models While built on “free to member” focus: social media monitoring, analysis and publishing. The acquisitions
models, both Facebook and LinkedIn have incorporated paid options. have also sought to solve real-time collaboration and communication
Facebook charges for virtual goods and has taken an additional approach issues across the enterprise. The recent acquisition of Buddy Media
(initially in New Zealand), allowing users to promote content by paying expanded Salesforce’s capabilities in social commerce, analytics and
to place it at the top of friends’ newsfeeds. LinkedIn has a tiered sub- social ad management.
scription model where members can pay a yearly fee for additional data.
New social network App.net is unique in that it offers no free option, but Buddy Media’s suite of tools powers Salesforce’s social operating plat-
rather promises a commercial free, real-time socially driven information form, designed to help companies better combine their paid, owned, and
stream with an open API for developers, with tiered pricing for users and earned media strategy. As Buddy Media CEO Mike Lazerow recently
developers. App.net give members full control of their data. noted, “The idea is to use the system to create page content, track which
material resonates with users, and then promote that content via paid
Realizing the Potential of Location-Based Services For location-based advertising placements on Facebook to drive further engagement.”
services to take off, the value proposition needs better definition, with
clear guidelines for engagement. While targeting ads, based on predict- Jeff Ragovin, the company’s Chief Strategy Officer, said the goal of the
ing mobile users’ activities, is a great monetization strategy, a compelling acquisition by Salesforce is to connect customers’ backend office with
user value proposition could spawn other revenue opportunities and revenue driving operations by combining listening, engagement, pub-
help build a successful platform (as VCs would say, “Build a business, not lishing, and measurement with CRM.
an application.”) Over time, location-based
technology will enable advertisers and mar-
keters to serve timely offers, alerts or ads (paid
media) and allow the user to push interaction
to their network (earned media).
Personalizing the Web The Facebook Open
Graph access for brands is a significant
Facebook development. The brand app inter-
acts with consumers to allow for rich consumer
data and engagement capture, which ties back
into the operating system and CRM – if a user
permissions the install once, the brand contin-
ues to capture the user’s data and activity.
Interactions and socialization with the user
provide brands with reach through paid ads,
earned placement, and stories on brand owned
4 JEGI Client Briefing – November 2012

5. Bringing Greater Transparency to CRM According to Mr. Ragovin, no hard to identify, engage and amplify this massive audience at scale in a
one is accurately tracking online and offline customer engagement with cost effective manner. To do so, it takes a combination of listening, analy-
meaningful insights or developing ways to reach those targets effective- sis, insight, scoring, and intelligence in an active real-time machine learn-
ly over time. Using Salesforce for all customer communication will bring ing platform. Companies like Salorix and IBM are addressing this big
full transparency to the CRM platform, so that brands can reach users, data issue.
customers, and prospects in real-time. Participating in social at scale is challenging. These social analytics and
Apart from CRM, enterprises are also using social media for internal non- amplification platforms enable massive scaled engagement across mul-
customer facing initiatives, such as talent management and resource tiple channels in real-time. By leveraging social intelligence – the “brain”
optimization. Both Oracle (via its that can classify data and weed
Taleo and SelectMinds acquisi- out noise – brands can partici-
tions) as well as SAP (via its pate in public conversations,
Successfactors and Jobs2Web using three primary methods:
acquisitions) have been active in automated (triggered responses
the talent management, engage- to a brand’s friending/follow
ment and social recruiting space. users); semi-automated (cus-
Intelligence & Analytics A new tomized feed-back requiring prior
breed of Social Intelligence com- review by a social media analyst);
panies, technology driven agen- and manual (live brand manag-
cies, will be charged with gener- er/user conversations, typically
ating actionable insight and reserved for crisis intervention or
defining social ROI. Companies top brand influencers/advocates).
will be faced not only with creat- IBM has made a significant bet in
ing analytic measuring standards the Enterprise Marketing
but also with tying social media Management (“EMM”) space,
to campaign attribution model- positioning itself as an end-to-
ing. It is critical for brands to end marketing services/solutions
endorse influence and advocacy as pillars of their social strategy and provider, with an announced $20 billion available for acquisitions
therefore equally important for attribution models to correctly measure through 2015, to continue its shift in focus to software. One of IBM’s lat-
the impact of influence for brands. est initiatives is the combination of multiple recently acquired companies
Big Data Enables Enhanced Business Intelligence User identification, to form a full service EMM suite, providing a 360-degree view of the user
engagement and amplification represent a big data challenge, since across all engagement channels. Social Media plays a key role in this
most conversations occur outside the owned media environment. It is strategy, as IBM is focused on driving business decisions via client data. I
Outsell’s Signature Event (cont. from p. 1)
In the past 18 months, information companies finding employment, and aging workers are will respond if they can help. This movement
have derived an average of 13% of sales from staying in their jobs longer, while advances in began about 10 years ago, when companies
new products. This was a significant drop from medicine are keeping them healthier. Com- started spending more of their marketing budg-
2010, when 20% of sales were generated by panies need to start investing more in education ets on their own web sites, as opposed to spend-
new products. However, new product develop- and training programs to make sure their work- ing through traditional media companies.
ment is the number one growth priority for force is knowledgeable about key changes in the Digital media companies will step up efforts to
information industry executives this year and marketplace and technological advances. provide “how-to’s” for companies that need to
next, so this percentage is expected to increase. learn how to promote themselves efficiently.
“Onsofting” Content Creation Information
Other growth drivers identified by CEOs in the
companies are starting to incorporate technolo- Mobility’s Next Wave With the growth in
Survey were IT infrastructure, sales, people,
gy and software into more of their internal pro- mobile devices, the information industry will
content and global expansion.
cedures. Outsell defines “onsofting” as the use need to be able to create and deliver all content
Seven Trends That Matter: of technology and software solutions to create through mobile networks.
content, instead of using people. This practice
Economic Turmoil The state of the economy led Three Trends That Are Over-Hyped:
is expected to become more prevalent in the
to tremendous uncertainty for businesses and
industry. Social Media B2B social media marketing is
contributed to the decline in product develop-
only effective for a small group of players in
ment, as noted above. Companies continue to Authority’s New Look It takes more than just a
each industry. Information companies do not
transform and need to rebuild their models, in trusted brand to sell your product today. There
need to follow suit just because everyone else is
order to move forward and initiate growth in are now three important components: a trusted
doing it.
the industry. brand; a trusted network; and the wisdom of
the crowd. Companies need to learn to manage Open Access Open access will not replace paid
Rise of Government Intervention Government
the complexity of what this authority looks like. content, especially in the education and
intervention is on the rise across all industries
research sectors. Open access and paid content
and regions. Unfortunately, governments are Ads Give Way to Commerce Over the next
will co-exist.
the only ones left with “any cards in their pock- decade, traditional B2B “push advertising” (i.e.,
ets to play right now.” Businesses have had to vendors promoting themselves to their poten- Workflow Not all jobs need to have their own
tread lightly, due to economic uncertainty. tial customers) will give way to “pull advertis- workflow solution. “Micro-workflows” are
ing” – where the customers will advertise the being imbedded into existing products for both
Talent Wars and Skills Gap Due to the soft
business solutions they need, and companies desktop and mobile devices. I
economy, young workers are having difficulty
JEGI Client Briefing – November 2012 5

6. JEGI Q3-12 M&A Overview & Outlook: Smaller Deals & Strategic Buyers Dominate
Swimming against the tide of economic and imperative to invest in
political uncertainty, media and technology faster growing revenue
M&A has been robust so far in 2012. 946 streams and new services
M&A transactions in media, information, for their customers to off-
marketing services and technology totaled set competitive pressure
$49.4 billion over the first three quarters of the and rapid shifts in their
year. This record-setting pace, up by about traditional markets.
50% in both volume and value over 2011 lev- Nonetheless, many have
els, was driven primarily by smaller deals. 91% yet to tap their historical-
of transactions during the period were less than ly strong balance sheets
$50 million in value, and only 6% were more to do so.
than $100 million. However, overall M&A Typically, one of the two
value still increased 52%, due to nine deals key elements to a healthy
over $1 billion in value, according to JEGI. M&A market is an abun-
dance of available cash.
However, the other key to be sellers of companies they acquired during
element, confidence, appears to have been the 2006-2010 period. One other telling trend
missing among the many strategic companies in PE was that nearly 40% of all PE buy-outs
that have shied away from making larger, trans- in 2012 have been a PE owner selling to a PE
formative acquisitions, despite their strong buyer.
cash positions. Once the election has been
sorted out and there is a greater level of certain- Active Buyers
ty, it is possible that companies will return in a While transactions are smaller in size, the good
bigger way to the M&A market. news is that the market is being driven by a
Meanwhile, private equity firms have become diverse set of active buyers. The top 30 most
more active, especially on deals over $100 mil- active buyers were led by the Ad Agencies,
lion in value, where PE firms were the buyers which accounted for 30% of the transactions.
on 26% of these transactions. They too have Digital Media companies were next with 23%
access to historically high levels of capital, as of the deals, followed by Information companies
Strategic buyers accounted for 85% of transac- PE firms raised record amounts in 2007 ($313 (19%) and Private Equity Firms (14%). This
tions in the first three quarters of the year; billion) and 2008 ($312 billion). This capital reflects the trend that buyers are stepping out-
most were small, tuck-in acquisitions or acqui- is generally subject to a five-year investment side their traditional footprints to broaden their
hires (i.e., acquisitions primarily to secure the window and must be put to work or relin- business models, and that convergence across
target’s engineers and other talented staff ). quished. In addition, PE funds will continue the media, information and marketing land-
Corporate acquirers are generally feeling an scape continues.
M&A Conversation
Moderator: Wilma Jordan, Founder & CEO, JEGI about scale and long-term competitors. Scale becomes a real problem,
Guest Speaker: Lou Eccleston, President of S&P Capital IQ and especially in the financial world today, where technology is an impor-
Chairman of the Board of S&P Dow Jones Indices tant enabler of solutions. How many infrastructures can you build?
How much duplication can you afford? What we found was that we
Wilma You are in the seat of a real transformation at McGraw-Hill. Tell had some nice businesses making $200 million or less, but when you
us about the thinking that led dividing McGraw-Hill into two compa- put them all together, you have to worry about scale. You need to get
nies: McGraw-Hill Financial and McGraw-Hill Education. it right on the operating model and in duplication—that is the founda-
Lou The thinking is clear on a couple of fronts. Education and Financial tion for growth.
are very different businesses. There is the opportunity to create two The reason I went to one P&L is that I found one of the biggest obsta-
separate companies, with separate stocks and capital structures; one is cles to growth is when people spend time talking about things that
a transformational, lower-growth/lower-margin business, and one is a don’t fuel growth, such as internal allo-
higher-growth/higher-margin busi- cations. The key is to keep the conver-
ness. This ties directly to M&A, and the “Communication is hard - this is the ‘blue sations about clients, markets and
opportunity to leverage balance sheets growth – not on which P&L we should
to unlock value and get the right capi- collar job of leadership.’ People tend to push
allocate a cost.
tal structure, with the right focus on difficult development conversations to the
growth. Getting the right SIC code is Also, you need people to execute your
back, but they are important to growth.” strategy. The concept of a billion dollar
also a big deal, as it enhances the abil-
ity to speak with analysts who under- start-up…no matter how advanced the
stand the financial side of the business. technology is and how much capital
you have, it really comes down to people. If the employees want the
Wilma You termed your new division a “billion dollar start-up” with company to win, it will perform much better. So, communication is
29% operating margins—that is exciting—and you mentioned taking important. People need to believe the plan is achievable, and then
12 different profit and loss statements and combining those into they need to understand their role in it and believe they will succeed if
ONE—can you talk about that process? the company succeeds. Communication is hard – this is the “blue col-
Lou It was painful. When we looked at these different lines of busi- lar job of leadership.” People tend to push difficult development con-
ness, they were all doing very well by themselves, but you have to think versations to the back, but they are important to growth.
6 JEGI Client Briefing – November 2012

7. The chart below shows transaction activity by game. Recent examples include Dentsu’s $4.9 ment windows, will motivate PE funds to con-
sector. Marketing Services & Technology has billion buy-out of Aegis, WPP’s $540 million tinue as active buyers in 2013.
been by far the most active, with large increases purchase of AKQA, and Publicis’ $539 million 3. Lenders – focusing on larger transactions and
in both number of deals and value. B2C and acquisition of LBi. companies with strong recurring revenue
B2B Online Media & Technology and Database Predictions for 2013 streams, “must have” information, and technol-
& Information Services are also very active. ogy driven models, banks will continue to be
Mobile Media & Technology is a fast-growing JEGI sees four likely trends for M&A continu-
ing into 2013: active lenders, and debt covenants may loosen a
sector for M&A, with nearly double the number bit.
of deals and value year-over-year. 1. Strategic Buyers – with historically high levels
of liquidity and the need to transform their busi- 4. M&A Market Dynamics – buyers who can
Within Marketing Services & Technology, find opportunities in volatility and uncertainty
agency services continue to be a very active area ness models, we could see larger, more transfor-
mative M&A deals for strategic buyers in 2013. will do well; high-growth, emerging companies
for M&A, as brands continue to push the enve- will continue to be the “sweet spot” in the 2013
lope on how they spend their marketing dollars 2. Private Equity – record amounts of capital market. I
and traditional agencies transform to stay in the raised in 2007 and 2008, facing five-year invest-
Media, Information, Marketing Services & Technology M&A Activity
2012 2011 % Change
January -September January - September
Industry Sector No. of Deals Value ($MM) No. of Deals Value ($MM) No. of Deals Value
B2B Online Media & Technology 71 11,677 54 5,834 31% 100%
B2C Online Media & Technology 196 6,522 183 5,989 27% 9%
Business-to-Business Media 24 235 11 38 118% 526%
Consumer Magazines 36 240 20 2,238 80% (89%)
Database & Information Services 46 8,807 33 5,160 39% 71%
Education Information, Technology & Training 44 1,441 48 2,432 (8%) (41%)
Exhibitions & Conferences 39 648 18 371 117% 74%
Marketing Services & Technology 384 16,593 212 8,764 81% 89%
Mobile Media & Technology 106 3,282 56 1,706 89% 92%
Total 946 $49,444 635 $32,531 49% 52%
Wilma Lou, talk to us a bit about the launch of S&P Dow Jones Lou S&P Capital IQ and S&P Dow Jones Indices has an organic acqui-
Indices—certainly this was a combination of two iconic brands that sition strategy. We are a poster child for small deals. When we looked
provide solutions for global investors. How did this combination come at our combined businesses, we asked ourselves what we were miss-
about, and what do you expect from this group, in terms of revenues ing. We needed portfolio capabilities and global real-time capabilities
and growth? for distribution, etc. We didn’t want to buy a large company to achieve
Lou We had a long relationship with the Chicago Mercantile Exchange this. We have found that in most large-company M&A transactions,
for licensing. The index business is fundamental: you either license for the entity being sold has been spending its time over the past few
transactions on an exchange or assets under management with an years getting ready for sale, rather than building the business. As a
ETF. When we looked at where the world was going competitively and result, an acquirer can potentially expect to spend millions of dollars to
from a regulatory perspective, we saw a lot of failed mergers. The grow technology capabilities after the acquisition is complete. Also,
three big trends were: 1) linkage deals – exchanges are thinking about acquirers need to figure out how to make a new company fit within
combining technology in order to scale; 2) focus on products to drive their existing organic strategy.
transaction fees and assets under management; and 3) regulatory ben- We want to keep our organic strategy as is and find software and tal-
efits – with the centralization of execution and clearing, this becomes ent to add to the company, so we started looking at early-stage IP buys
a big part of it. We had to look at these trends and see which direction all over the world. We were fortunate to find three good businesses
we wanted to go. McGraw-Hill was looking for more of an economic and complete all three acquisitions in the first six months of the year—
and strategic relationship, as opposed to a purely commercial/transac- one in Toronto, one in Paris, and one in London. With these three acqui-
tional relationship. We wanted to be able to diversify into execution sitions, we added 130 scientists, engineers, and mathematicians. And
and clearing without having to actually do it. With this merger, we got instead of subsuming these companies into S&P Capital IQ and S&P
a wonderful brand, intellectual capital, footprint, awareness, and also Dow Jones Indices, we kept them as talent centers right where they are
revenue diversification, which was a great mix. There is solid growth in located: the company in Toronto became our global portfolio risk ana-
this kind of business. lytics group; Paris became real-time; and London leads our valuations
Wilma Lou, you have also mentioned adding 130 computer scientists and pricing business. The entrepreneurs are able to continue to do
and tech people in six months—how did you achieve that, and what more of what they want to do, instead of conforming to the corporate
did you learn about this talent market? plan. Through this type of organic growth, we now have new talent
and capabilities to fill our gaps. I
JEGI Client Briefing – November 2012 7

8. Transactions Reaching Nearly $700 Million in Value in 2012
a portfolio company of a division of DMGT plc
an award winning publisher has sold
SaaS-based applications
for the consumer products of online primary source collections has sold
licensing industry for university research
a leading peer-to-peer
has been sold has been sold the leading provider leadership platform
to of sales enablement and business for Fortune 1000 C-suite executives
to
intelligence SaaS solutions to
to
&
for $94,000,000
October 2012 October 2012 October 2012 September 2012
has sold
a global leader in digital the leading provider of news,
engagement specializing in information, events, and data
parent company of to the global travel, meetings
promotions and loyalty campaigns
across mobile, social and web and hospitality industries
a leading consumer enthusiast has been sold
has been sold community, content and the leading Canadian producer
to ecommerce provider of trade shows, conferences to
and consumer shows
has been sold to
to
for $53,000,000
August 2012 July 2012 July 2012 July 2012
a leading provider of
integrated event solutions has sold the assets of
a SaaS marketing platform (CRM)
for real-time, multi-stage, and and FUTURE MUSIC US
multi-channel marketing including a portfolio company of including
social media, email, and mobile
The Riverside Company
has been sold and
VS&A Comm Partners Fund II to
to
has been sold
to
a portfolio company of
May 2012 April 2012 January 2012
JEGI’s client is mentioned first in each of the above transactions.
Wilma Jordan Scott Peters Tolman Geffs
Contact Us to Discuss Founder & CEO Co-President Co-President
the Marketplace and Your Company’s wilmaj@jegi.com scottp@jegi.com tolmang@jegi.com
M&A Strategy. Richard Mead David Clark Tom Pecht Bill Hitzig
Managing Director Managing Director Managing Director COO
richardm@jegi.com davidc@jegi.com tomp@jegi.com billh@jegi.com
150 East 52nd Street, 18th Floor Amir Akhavan Adam Gross Tom Creaser
New York, NY 10022 (212) 754-0710 Director CMO EVP
www.jegi.com amira@jegi.com adamg@jegi.com tomc@jegi.com