Jegi newmedia 2010

Brand Advertising Online
and The Next Wave of M&A

IAB Annual Leadership Meeting
February 2010

Agenda

I. M&A Market Update

2010 IAB Annual Leadership Meeting 2

M&A Market Update

What was the biggest surprise of the last two years?

Surprise #1 Surprise #2

May 2008
12,829 200
#1 This Week

Mar 2009
6,547


M&A Market Update

For those who spent last year in a cave…

U.S. Media & Information M&A Activity

Total Value ($ billions)
Number f T
N b of Transactions ti
872
812

637 $104.4 615
542
456
$65.6
$60.6
301 $54.0

$29.9 $31.8
$16.1

2003 2004 2005 2006 2007 2008 2009

Source: JEGI transaction database. Includes media, information, marketing services & related technology sectors.


M&A Market Update

… M&A rebounded in late 2009, especially interactive

Interactive Sector M&A Activity 2009 Top Deals ($ mm)
Total Value ($ billions) Number of Transactions 1 Omniture $1,800

2 SPSS 1,200
214
178 3 Zappos 850
165
4 AdMob 750
129 $13.3
5 BankRate 571

$8.4 6 Razorfish 530
7 Web Reservations Int’l 458
$4.6
8 Playfish 400
$1.8
9 BuscaPé 374
1st Half 2nd Half 1st Half 2nd Half 10 Retail Convergence 350
2008 2008 2009 2009
Total $7,283
Source: JEGI transaction database. Includes interactive marketing services, online media and mobile.


M&A Market Update

Public valuations have only partially recovered to prior levels

Median Revenue Multiples Median EBITDA Multiples

Year End 2007
Multiples rebounded from end-2008 lows,
Year End 2008
Today but remain well short of 2007 levels

5.6x 33.1x
5.2x

3.2x 19.2x
2.9x 3.1x
14.8x 15.3x
13.5x 13.4x 12.2x
1.9x 2.1x
1.8x
1 8x
1.3x 6.9x 7.2x

Online Interactive Video Online Interactive Video
Media Marketing Infrastructure Media Marketing Infrastructure

Source: Capital IQ


M&A Market Update

Broad range of late-2009 interactive deals as M&A resumed
Tools Social E-commerce

Agency

Media
M di Games
G Search
S h Music
M i

Ad Delivery B2B


Agenda


II. What the Deals are Saying… And Not Saying


What the Deals are Saying… And Not Saying

1. Is “Above the Line” Brand Advertising in Decline?


Decline of Brand Advertising?

Traditional brand advertising vehicles have been hammered

Valuations Underperform Market Distressed Sales

20%

0%

-20%
S&P 500
-40% Yahoo!
NY Times Co.
-60% CBS
Gannett
G
-80% Media General
-100%
2007 2008 2009 2010

This is not just the economic cycle
Source: Yahoo! Finance



Spending continues secular shift to promotional and interactive

During 2009, for the first time, consumer marketer spend on direct, promotional
and digital marketing exceeded total ad spending in traditional measured media

Consumer Advertising Spending 2003-2013
2003 2013 Net New Spending 2009-13
2009 13
Traditional Brand Media
$160 Growth
Growth Sectors
Sectors
$140 99%
$41 billion
Billions

$120 CAGR = 7.8%
$100
CAGR = (1.9%) Traditional
$80
Brand Media
< 1%
$60
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: VSS Communications Industry Forecast, 2009–2013 (August 2009). Excludes Cable.
Traditional Media: Newspapers, Broadcast Television, Radio and Consumer Magazines.
Growth Sectors: Consumer Promotion, Direct Mail, E-Mail and Internet Advertising.



Branding and execution move But more efficient promotion
closer together for some requires better differentiation
… AKA branding
Example: Major Online Ad Net
Top 10 Clients in 2009

“Reports of my death are greatly exaggerated.”
– Mark Twain


2. How Will Targeting Change Brand Advertising Online?
2 H T ti Ch B d Ad ti i O li ?


Rise of Targeting

Market shift to selling audience vs. sites

1. Sites
Sold on site-specific, channel
or run of network comps
Display Advertising Demand
2. Audience
Individually targeted by behavior (e.g.
in-market) plus context, geo, demos

Display Advertising 2009-2011: Illustrative View
$ billions
2009 2010 2011 CAGR

Sites $6.3 80% $6.5 75% $6.9 70% 4%

Audience $1.6 20% $2.2 25% $2.9 30% 36%

Total Display $7.9 100% $8.7 100% $9.8 100% 11%

Source: eMarketer (January 2010); Think Equity; JEGI estimates


Rise of Targeting

Massive proliferation of players in targeting audiences for brand ads
1. Agency Platforms 2.
2 Demand Side Platforms

4. Ad Exchanges and 3. Data Sources
5. Starbucks Publisher Side Platforms


Rise of Targeting

Surge of audience-related investments in
Targeting and Real Time Bidding (RTB) Platforms

Major Transactions/Financings Significant RTB Investment
$ millions x
x $95
(TK)

$30
(TK)

$52

Plus many DSPs ~ $140

Healthy revenue multiples Biddable volume scaling
Source: Capital IQ


Rise of Targeting

Coming land war for margin in the display ad delivery chain

Ad Delivery Players Ad Targeting Players
Publishers
CDNs

Display

Ad Serving

Rich Ads

Video Nets Publisher
margins get
Ad N t
Networks
k
squeezed


Rise of Targeting

Crowded value chain squeezes display margins
ILLUSTRATIVE

$5.00 cpm New pressure

($0.75)
($0 75)

New participants

($2.00)
($0.75) $1.00 cpm
($0.25)
($0.25)

Advertisers
Ad ti Agency
A Ad N t
Network
k Data
D t Ad E h
Exchange Ad S i /
Serving/ Publisher
P bli h
Provider Rich Media

How will current participants react?

Source: JEGI estimates


Rise of Targeting

Online ad network transactions went silent in 2009

2007-2008
2007 2008 Ad N t
Network D l
k Deals 2009-2010
2009 2010 Ad N t
Network D l
k Deals
M&A Mobile

PE Financing Web


Rise of Targeting

Clear divide between “old school” and newer audience-driven ad nets

Aggregate long tail imps/channels
long-tail vs.
vs Sell data-driven audiences
data driven
Revenue: $26 million Revenue: $42 million
Enterprise value: $200,000 Enterprise value: $110 mm

Audience-Driven Networks Scaling Well
Examples Collective Media Undertone
Acerno / Akamai Dotomi Yahoo APT
Audience Science Specific Media and others
Source: Capital IQ


Rise of Targeting

Data is a valuable service, but is it a scalable business model?

Online Offline

Big bets on pure data providers List Management – around for a while…
Fragmented, many list brokers
$30 million invested
Low margin after cost of acquiring data
$52 million invested
Premium publishers very sensitive to control

HEAD SCRATCHER

Why will online be different?
To scale as a business, will data need to be tied
Source: Capital IQ
to monetization – ad sales, DSP, transactions?

Rise of Targeting

Premium publishers losing a key advantage…

Publisher Display Value Proposition

1. Premium Context
Advertising has better
recall and impact

2. Premium Audience
Advertising reaches
target audience efficiently

“Now I can target my audience
in th
i other – cheaper – places.”
h l ”


Rise of Targeting

…So how much can they win back as data gatekeepers?

Publisher Data Value Proposition

1. Publishers originate premium user Will require different skills
Is cookie deletion – est at 10% per Win back some – but not
month – the publisher’s friend? nearly all – of lost margin
2.
2 Publishers monetize data So scale and new revenues
Resell targeting data will matter even more
Create own networks
Buy append data for own audience
Sell audience across “cloud”



2. How Will Targeting Change Brand Advertising Online?
2 H T ti Ch B d Ad ti i O li ?
3. Are Video and Mobile the Next Big Things for Brand?


Online Video Growth

Wave of video deals – is online video finally scaling up?

Recent S l
R t Sales Recent Fi
R t Financings
i

$ millions $ millions

$110 $33

$20
$109
$20

$16

$16

$13

$11

$10

$10
Source: Capital IQ


Online Video Growth

Forecasts point to rapid growth for online video

U.S. Online Video Ad Spending Proliferation of Video Applications
Annual Amount ($ millions)
Consumer B2B
% of Total U.S. Online Ad Spending
12.4%

10.1%

7.8%
7 8%
$3,844
$
6.1%
$2,858
4.6%
$1,966
$1,440
$1,029
$1 029 Direct to living room
Direct-to-living room, Video as killer app
app,
direct-to-device embedded in many
“Stateful” portability more applications
2009 2010 2011 2012 2013 Customer choice on Enterprise, CRM, CMS,
bus ess ode
business model – healthcare, education,
pay or ads e-learning, government
Includes in-stream, in-banner and in-text ads
Source: eMarketer (December 2009)


Online Video Growth

If anything, video is likely to grow faster than forecasted

U.S. Video and Display Advertising - 2009
$ billions
In-Stream
Online video currently a
y
$0.5
$0 5 Video
$6.7
fraction of total TV and
Display & online spending
In-Page Video
One European ad net
reports 60% of video
buys now coming
$73.2
directly from TV budgets
Television
Tele ision
Shift in agency dynamic
is key

Source: VSS Communications Industry Forecast, 2009–2013 (August 2009) and eMarketer (December 2009).
In-Stream Video includes linear and non-linear advertising. Display & In-Page Video includes banner ads, rich media and
all online video except in-stream. Television includes national and local broadcast and subscription services.


Online Video Growth

Shift in agency dynamic is key

Video – Past Video – Soon

Scarce inventory, small buys
inventory Inventory and campaigns scaling
Inconsistent standards across Better standards (VAST, VPAID) and
publishers, providers more efficient workflow emerging
Very labor intensive to plan, Better (than TV) commissions
execute, bill and reconcile

Money loser for agency More attractive


Time for Mobile?

Is mobile the next big advertising medium for brands?

U.S.
U S Mobile Advertising Spending Mobile Deal Frenzy
$ millions Recent deals at rich valuations
$1,560
$
$750 mm
$1,140
$830 $275 mm
$593
$416

$211 million of disclosed VC in nine
more mobile ad nets
2009 2010 2011 2012 2013
Source: eMarketer (September 2009)

Just how rich are these deals?

$750 mm $1 billion value ≈
$275 mm entire 2012 mobile
ad revenue

Time for Mobile?

Mobile brand advertising is TBD.
Mobile promotion should be a great business

Mobile Head Scratcher

Big deals can be red herrings; mobile is
still “TBD” as a branding medium Examples:
Mobile has small screens and distracted,
task-oriented users
Better devices are out (iPhone, Android),
agency adoption will be slow
Self identification + intent + location =
BUT… help a consumer complete task Killer promotional vehicle
p
and is this a great promotional medium?

Source: eMarketer (September 2009)



2. How
2 Ho Will Targeting Change Brand Advertising Online?
Ad ertising
3. Are Video and Mobile the Next Big Things for Brand?
4.
4 What About Local?


Role and Reach of Local

Pace of local deals picking up…

M&A Financing
Fi i IPO Fili
Filing



…But, is there any such thing as “local”?

Local Head S
Scratcher DNA of Winning Local Models
f

Do consumers think “local”, then “I Local applications – solving a problem
need X” … or just think “I need X”? Content,
Content audience and sales costs low –
What does this say for “Citysearch” preferably zero for at least part
vertically integrated models that rely Leveraging traditional media is one way,
on content aggregation and search? mobilizing the community is another
g y



Emerging models efficiently leverage partners and the crowd

Vertically I t
V ti ll Integrated M d l
t d Model Higher L
Hi h Leverage Models
M d l

1. Buying consumer traffic
COGS = 55% of revenue

2. 525 local sales reps (@$129k)
Sales & Marketing = 38% of revenue

3.
3 Low contribution margin
Only 7% remains to support
product and platform

Source: ReachLocal S-1. Based on nine months ending September 30, 2009.


Agenda


II. What the Deals are Saying… And Not Saying

III. Implications for M&A


Implications for M&A

The digital space is still a great place to be for creating value

2008-2009 M&A Multiples by Media Sector
Revenue Multiple
16.0x
EBITDA Multiple 15.1x
4.5x
12.5x

3.1x
8.6x
7.8x 7.6x 2.6x
7.1x 2.3x

1.2x
0.9x 1.0x

Consumer Business Newspapers Traditional Database & Consumer Interactive
Magazines Magazines Marketing Information Online Media Marketing
Services Services

Source: JEGI transaction database. Values for Newspaper sector reflect current public trading multiples due to lack of recent transactions.



M&A will be robust due to the rapid pace of innovation and adoption…

An Abbreviated History of Consumer Technology Adoption

Broadband
Speed of Consumer Adoption

In-Hand
Personal
Computer
Microwave
Popcorn
Cell Phone

Television
Wheel
Consumers adopting
disruptive technology
faster than ever before

Time


…combined with strong projected growth in online advertising…

U.S. Online Advertising by Format ($ billions)
Search Lead Generation
Display Video 2009-2013 CAGR:
Classifieds Email
Search 8.0%
$31.0 Display 5.3%
$28.3
$25.2
$25 2 Classifieds (1.6%)
(1 6%)
$22.4 $23.6
Lead Gen 6.9%
Video 39.0%
Email
E il 7.1%
7 1%
Total 8.5%

2009 2010 2011 2012 2013
Source: eMarketer (December 2009). Display includes banner ads, rich media and sponsorships.



…and the lack of an IPO exit window for most successful companies

U.S. Media & Technology IPO Activity
Completed
Cancelled/Withdrawn
Announced

29

8 6

42 40 45 15
14
14
7

2005 2006 2007 2008 2009

Source: Capital IQ. Includes media, online and software/services sectors.



Low macro growth + record cash = strategics must acquire to grow

Economic Growth Outlook
E i G th O tl k Corporate C h H ldi
C t Cash Holdings
S&P 500 Cash Holdings ($ billions)
Country/Region 2007 2008 2009E 2010E
$773
$665 $702
$616 $6 8
$648 $6 8
$648 $
$655
USA 2.0% 0.4% (2.7%) 1.5%
Euro Zone 2.7% 0.7% (4.2%) 0.3%

UK 2.6% 0.7% (4.4%) 0.9%

China 13.0% 9.0% 8.5% 9.0%
Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09
India 9.4% 7.3% 5.4% 6.4%

Advanced 2.7% 0.6% (3.4%) 1.3%
Cash holdings at select media/tech firms:
Cisco $39.6 Amazon $6.4
Emerging 8.3% 6.0% 1.7% 5.1%
Microsoft $33.4 Time Warner $4.8
World 5.2% 3.0% (1.1%) 3.1% Google $24.5 Yahoo! $3.3
pp
Apple $24.8 Verizon $2.5
Motorola $8.0 IAC $1.8
Source: International Monetary Fund (IMF) World Economic Outlook, October 2009 Source: Standard and Poor‘s
Excludes Financial, Utilities and Transportation sectors.



We don’t need Google and Microsoft to buy everything –
new acquirers will enter the brand advertising value chain
Marketing Analytics Application of rich user data

Expand from customer data to
Consumer Data customer acquisition

Cable & Entertainment Rich consumer experiences

Web Delivery Advertising as an application

Infrastructure Adding intelligence to networks

Major Agencies Build baseline functionality

Large Display Ad Nets Differentiate with data + tools

Performance Advertising Apply ROI discipline

Expect unexpected combinations



Private Equity was active in this sector, until they hit a bump…

Recession + Credit Meltdown



… and with $400 billion to invest, Private Equity will acquire scaled,
cash-flowing digital businesses in the brand advertising value chain

RADIO

CONSUMER MAGAZINES

BUSINESS MAGAZINES

B2B ONLINE MEDIA

DATABASE & INFORMATION

CONSUMER ONLINE MEDIA

INTERACTIVE MARKETING

1990s 2000 2004 2008 2012+



How will major media companies respond as advertising transforms?
Diversified media groups wrestling with
Secular shift to below-the-line media
Impact of targeting & data on online brand advertising
p g g g
Growth of video, mobile and local advertising & promotion models

Some already pushing into marketing services and online display value chain,
others are looking hard at ways to participate



And finally, we expect Google will buy Oregon and British Columbia…

… just to mess with Microsoft


Agenda


II.
II What th Deals
Wh t the D l are S i
Saying… A d N t S i
And Not Saying

III. Implications for M&A

IV. About the Jordan, Edmiston Group


About JEGI

The Jordan, Edmiston Group, Inc. (“JEGI”)
Leading I d
L di Independent Investment B k
d tI t t Bank
Exclusively Serving the Media, Information and Technology Sectors

Founded in 1987, over 500 transactions completed
Sell-side M&A, divestitures, financings, valuations and strategic advisory
Broad l ti
B d relationships across major media, t h l
hi j di technology, d t and marketing
data d k ti
acquirers as well as financial buyers
Deep domain expertise plus disciplined transaction processes
Very high transaction completion rate


Selected Recent JEGI Transactions


Diverse Buyers & Premium Valuations

Seller Sector Buyer

1. Acerno Behavioral targeting
g g Akamai
2. Circles Customer care Sodexo
3. Congressional Qterly Legislative data Economist Group
4. Cymfony
4 C f Social
S i l media analytics
di l ti TNS
5. Gorilla Nation Brand advertising Great Hill Partners
6. Klipmart
p Online video advertising
g DoubleClick
7. KnowledgeStorm Professional IT search TechTarget
8. m:metrics Mobile measurement comScore
9. Moreover
9 M Real ti
R l time search
h VeriSign
V iSi
10. PointRoll Rich media advertising Gannett

Revenue / EBITDA M lti l
R Multiples
High: 7.8x / ∞ x Mean: 4.4x / 22.3x

2009/2010 YTD Transactions

In each transaction JEGI’s client is mentioned first.


2008 Transactions



2007 Transactions



Download this presentation or sign up to
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www.jegi.com
jeg co

Tolman Geffs
tolmang@jegi.com


Jegi newmedia 2010

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