The following is a perpetual-work-in-progress. Once you start to compile a list of mergers and acquisitions, you realize why it’s nearly impossible to have a complete list. We are quite confident that the following is a very good, comprehensive list of the largest, more notable deals… but it is not - and no list will be - fully complete because there are too many countries around the world and too many industries to report (it is highly possible that the Wall Street Journal or Financial Post, for example, has such a list… but it would be thick and unwieldy).
We have included:
- many industries
- have not adjusted for inflation
- mergers (be it all cash, cash/stock, or all stock)
- acquisitions (we have excluded partial acquisitions)
- private equity deals.
It is certainly not complete, send me any ones you think I am missing or industries you want us to add next to ash@mojosupreme.com or leave in the comments.
Trivia:
- In 1981, when DuPont acquired Conoco for $7.8B, it was the biggest deal of all time. But adjusted for inflation, that remains a $20B deal by 2008 standards.
- KKR’s private equity deal for KKR remains the biggest buyout when adjusted for inflation, but in actual dollars it has been long surpassed.
Related on HipMojo.com:
Editor’s note: I knew we were speaking too soon. One more deal to add to the list: Time Warner to buy Quigo. Added to the bottom of the list, under ad networks.
According to The Jordan Edmiston Group Inc.’s October 2007 Client Briefing report, the number of deals through the first three quarters of 2007 exceeded full year 2006 figures: 637 transactions with $95B in value thus far. Do the math and that is $150M per deal, quite rich.
As such, publishing our list in November 2007 is a bold and potentially premature thing to do. Regardless, why wait?
What started off as a Top 10 list turned into a Top 27 list: then it got out of hand because we were comparing apples with oranges. We’re at over 30 M&A deals in web-oriented sectors that stood out.
The deals are not listed by size or order of magnitude, just a combination of value, strategic fits and long term potential. Others made the list due to the storylines, frankly, or because they took a while and garnered the media’s attention.
At least one, you’ll see which one, has yet to be finalized, but we expect that it will.
Enjoy, feel free to add, criticize, re-order etc. Surely we’re missing some major ones… some time in December, using emails, comments, suggestions and votes I’ll probably publish a top 10 list of 2007 acquisitions…
ONLINE/OFFLINE PRODUCTIVITY SUITES & COLLABORATION TOOLS
- Yahoo! acquires Zimbra for $350M
Yahoo!’s email service remains the most popular in the world, but when it comes to online meets offline office suites, it was sorely lacking, in particular due to Google’s encroachment onto Microsoft’s terrain against the backdrop of Yahoo!’s dead silence on the front. But, in one move, Yahoo! staked its claim to the party.
- Google acquires Postini for $625M
Google is trying to dethrone Microsoft’s grip on productivity suites while Microsoft is trying to encroach on online advertising. Google has bought Writely, launched a spreadsheet program and while these initiatives and acquisitions have gotten the vocal minority excited, they have failed to win the hearts and minds of corporate IT decision makers.
While we doubt one decision alone will make a change, the acquisition of Postini - makers of corporate email security tools and anti-spam software - could technically make a difference over time. Let’s face it, Gmail is indeed pretty cool, but corporations won’t be caught dead using it. Maybe by meshing Postini with Gmail, offices worldwide will stand up and take notice.
- Facebook acquires Parakey
In 2007, Facebook grew synonymous with hype. Anything the company touched, or sought to touch, quickly turned to gold. Mind you, the company’s torrid growth rate was nothing short of breath taking. But when Facebook announced that it had acq-hired Parakey, a yet-to-launch web operating system developed by Firefox co-founders Blake Ross and Joe Hewitt for an undisclosed price, people noticed because this meant that Facebook had MSFT in its cross hairs. Over time, MSFT made a $240M investment in Facebook, creating an alliance between the two firms, and suggesting that Google, and not Microsoft, was Facebook’s true nemesis.
See HipMojo.com’s post on the deal here.
- Cisco buys Webex for $3.2B
Webex was the first stock I bought, and the reason was simple: companies spend so much money on travel and phone calls are not always easy. Webex was a simple way to bridge the gap between people who needed to at least be on the same page when it came to sales calls and phone meetings etc. Webex who for the large part of the 21st centuy traded slightly above $1B in market cap ended up fetching quite a premium from Webex, selling for a whopping $3.2B.
See HipMojo.com’s post on the deal here.
PUBLISHING
- Answers.com acquires Lexico for $100M
Answers.com, whose parent GuruNet Corporation paid $57,000 for the URL moniker, turned around and paid $100M for the parent corporation of Dictionary.com and Thesarus.com, fitting for a company who bills its Answers.com site as the world’s largest Encyclodictionalmanacapedia.
Of course, Answers.com got far more than two sexy URLs, Lexico did decent revenue and earnings, too. But any way you dice it, the deal was rich, translating to:
- 35 times earnings
- 15 times revenues
- $9 per unique
See HipMojo.com’s post on the deal here.
- Discovery Holdings acquires How Stuff Works for $250M
How Stuff Works has been around for what seems to be forever. It raised $50M for expansion this year and many expected the company to be the one signing the checks, but by year’s end, the company’s interest in all things video led to its sale to Discovery Holdings for a whopping $250M.
See HipMojo.com’s post on the deal here and here.
- CBS acquires Wallstrip
On the one hand, as a fellow video producer at WatchMojo.com myself, I was happy to see Howard Lindzon’s Wallstrip exit successfully to CBS: it showed that one can create something of value in video content and, in all honesty, it created a floor price and a comparable… But, by the same token, I think Wallstrip sold too soon and for too little (nothing against CBS).
Ultimately, in the year when marketers spoke loudly against user generated content, it created a first example that professional made video could represent a valuable business if done right. If I dare say so, we’re now going to show just how much a video content creation and syndication business can scale and grow if you stick to your guns… but that’s for a separate post.
- Hearst acquires UGO for $100M
Men don’t read magazines. They’re watching less and less TV. Where are they? Apparently, online and playing video games. If that hypothesis and premise is true, then Hearst made a much needed investment to get into a video game publishing network targeting men, that of UGO. Incidentally, when Viacom and News Corp. vied for IGN Entertainment [disclaimer: my one-time employer after it bought the company where I was a partner], Hearst balked at the price tag, which hit $650M. But two years after that deal, the trend lines were clear: Hearst needed to get serious about reaching men online and the $100M acquisition of UGO was to serve as the spring board. UGO had raised $90M since its inception.
See HipMojo.com’s post on the deal here.
- CBS acquires Max Preps for $43M
High school athletics is a hot sector. High school sports are a key part of local content and local advertising has always been a huge market, and one that is up for grabs, particularly as newspapers see ad dollars flow to the Web. More importantly, high schoolers don’t spend as much time watching TV (not suggesting that all high school sports fans are actually high schoolers, of course). Combine these trends and you see why CBS’ acquisition of Max Preps was a smart one. After the deal, Max Preps was rolled into CBS’ College Sports Television (CSTV) and its network of websites. It’s always very important to hook consumers early on, and there ain’t a better time frankly than before the college years.
- Yahoo! acquires Rivals.com for $100M
$100M for a sports site geared towards college sports seems like a lot, for sure, especially when the previous year, News Corp. bought Scout for $60M and CBS bought Max Preps for $43M.
But when you consider that said company has raised $75M in venture funding and run by CEO Shannon Terry who made the list of SBJ’s Top 20 in Online Sports, you know the deal’s final price will get high.
Ultimately, by making the deal, Yahoo! leveraged its massive audience to become a main player in sports, rivaling FOXSports.com, SI.com and ESPN.com. Mainly, by holding out and seeing CBS and News Corp. buy Max Preps and Scout respectively, Yahoo! not only saw a floor being created for Rivals.com but also had to pay a premium to ensure that the company not fall in another media company’s hands.
See HipMojo.com’s post on the deal here.
- News Corp. acquires Dow Jones for $5B
I know what you’re thinking, did he fire six shots or only five, “Dow Jones is not online. I mean, it’s flagship product, the Wall Street Journal is not even free!”
My friends, Wall Street Journal has the single most successful subscription business and gets 10m unique users per month. For decades, lest centuries, media moguls and tycoons have pushed the mantra of synergies. Rupert Murdoch in one single transaction:
- acquires one of the two assets he’s always fancied (WSJ, other being the Financial Times),
- he gets the best springboard for his new Fox Business Channel,
- acquires 10M uniques on WSJ.com, or 17M in all if you include Marketwatch and Barron’s,
- has the right, but not the obligation, to open up WSJ.com and make it into the most valuable place advertisers can reach the world’s wealthiest and most influential readers.
If you consider all of the variables, that’s one helluva deal.
SOCIAL MEDIA
- American Greetings acquires Webshots for $45M
Forget the fact that Webshots remains a strong brand that just a few years ago was bought by CNET for $70M, but Webshots is actually very complementary with American Greetings’ business. Photosharing has become a huge market, and while in CNET’s hands Webshots needed to be a leader in its space, under a company like American Greetings, it need not be. Moreover, while in the hands of CNET Webshots needed to generate sizable ad revenues (given how many pageviews it generates), in American Greetings’ hands, it need not. In other words, American Greetings is buying a large online property that is very strategic to its core business at a discount. That’s a great deal.
- CBS acquires Last.fm for $280M
Extra! Extra! Read all about it: CBS’ (and traditional media in general) core businesses are shrinking. CBS is the world’s largest TV company in terms of ratings, the largest outdoor company and second largest radio company. But like TV (and print), traditional radio is shrinking, so CBS made the prescient move to buy Last.fm. Similar to Pandora, Last.fm allows users to find new music based on their tastes and the overall community’s listening patterns. Was Last.fm the absolute best and biggest site out there? Probably not, but when you are CBS, you cannot pull a Bertelsmann and invest in a Napster-esque company that has burned more bridges than [won’t go there but insert anything you wish here].
See HipMojo.com’s post on the deal here.
- Cisco acquires Tribe
Cisco is no stranger to acquisitions, of course, but it usually acq-hires teams of engineers or technology. But by buying Tribe, one of the earlier social networking sites, did Cisco signal a shift away from Sun Microsystems’ mantra that “the network is the computer” to social networking is the Web? Perhaps, time will tell.
Ultimately, it’s a tacit admission that the web will become central to, well, everything.
See HipMojo.com’s post on the deal here.
- Nokia acquires Twango for $96.8M
Twango combines online storage with social networking, allowing users to organize and share photos, videos and other personal media.
Twango was founded in 2004 by former Microsoft employees and has around 10 employees. The deal is estimated to be just under $100 million, $96.8 to be precise. That’s right, it weighed in at $10M/employee. Twango is a small step in the seamless transferring of files from handsets to PCs. The fact that Nokia made the acquisition suggests that Finland’s most valuable company should not be seen as a telecommunications hardware company alone.
- News Corp.’s Fox Interactive Media/MySpace acquires Photobucket for $250M
Photobucket’s acquisition by MySpace makes the list mainly because the storyline behind it was pretty soap opera-ish. Photobucket builds business - according to MySpace and FIM executives - a la YouTube by leveraging MySpace’s audience and community, then adds insult to injury by trying to run ads in their slides.
Then Photobucket’s M&A advisors Lehman Bros. whisper their asking price: $300-400M. A lot of people scratch their heads. Of course, fearing a repeat of YouTube, where a company grew thanks to MySpace but sold to someone else, News Corp. blows a gasket and its MySpace site blocks Photobucket.
Suddenly, value of widget-driven businesses and Photobucket in particular plummets. Back channel diplomacy ensues, coup de theatre follows in the shape, form and fashion of a $250M buyout by News Corp.
In fact, the rumor of an impending deal broke out in early May, and the deal was formally announced on May 30th.
See HipMojo.com’s post on the deal here.
- Hi-Media acquires Fotolog for $90M
When European online marketing juggernaut Hi-Media announced its acquisition of Fotolog, eyebrows were raised. On the WTF? side of the argument were those who said: “using Fotolog’s forecasted 2007 revenue of$2.3M, a net-of-transaction fee sale of $90M implies a pretty rich 39 prices-to-earnings ratio. That’s rich. But, the counter-argument was that Hi-Media was acquiring a community of image-crazed users for 1/3 of what News Corp. paid for Photobucket; yes, call it the reverse fool theory. With $15M in financing, a $90M payout was part of the lure, turned out that the institutional shareholders of Fotolog decided to hold on to their stock holdings of Hi-Media. It should be noted, that just before the acquisition, Fotolog had signed a $75M advertising deal with Google, over 36 months, or roughly $2M per month.
See HipMojo.com’s post on the deal here.
- MSNBC.com buys NewsVine
What does this mean for Digg? We don’t know, but last year, the leader in social bookmarking and news, Digg, supposedly asked for $150M from News Corp. Rupert Murdoch balked, launched MySpace News. I’m not sure how well MySpace News is doing, I suspect Digg is doing quite well, but the fact remains, I doubt Digg will get $150M (then again, a sucker is born every second) because Stumble Upon’s $75M price tag and NewsVine’s price tag imply a lower value for Digg.
Of course, this is a post on NewsVine, not Digg. I can’t understand really the logic and prevailing wisdom to sell NewsVine, a company who had raised less than $2M in financing and who was riding high as America is about to enter an election season and NewsVine’s core focus seems to be political… but, I digress. On MSNBC.com’s part, this marked the NBC/MSFT joint venture’s first acquisition, ever.
E-COMMERCE
- Hearst acquires Kaboodle for $40M
Hearst bought a handful of companies this year: UGO for $100M, which was pricey but not very expensive for a company that raised $90M of funding since inception. But given Hearst’s traditional business focus in magazine, the deal for Kaboodle is intriguing because it allows fashion and retail advertisers - two of Hearst’s main clients - to tippy-toe online and connect branding with purchasing. If Hearst can pull this off, the combination can become powerful, and valuable. Will they? Big old media doesn’t have the best track record, admittedly, so time will tell.
See HipMojo.com’s post on the deal here.
- eBay acquires Stubhub for $310M
eBay = auctions, Stubhub = scalping. It didn’t take the MBAs very long to see fits. Speaking of graduate degrees, founders Jeff Fluhr and Eric Baker owned roughly 35% of the company and with $15M in funding over the years, they managed to build a controversial but successful company that did $100M in sales and $10M in EBITDA. The company’s backers included Allen & Co, Blue Water Capital, Pequot Ventures and Staenberg Venture Partners.
SEARCH, NAVIGATION & DIRECTORIES
- R.H. Donnelly acquires Business.com for $345M
When word got out that Business.com might be selling for over $300M, the natural reaction was to think “the bubble is back”. After all, just a few years ago, founders Sky Dayton and Jake Winebaum acquired the URL for $7.5M from Marc Ostrovsky. At the time, even I thought “will they ever generate $7.5M in revenues off the site, over the course of its lifetime”? Of course, when Dayton and Winebaum bought the URL, Google had yet to create the keyword ecosystem that today underwrites much of online advertising. While critics maintained that by 2007, Business.com was little more than a directory of resold Google text ads, R.H. Donnelly saw salvation for their shrinking print directories and agreed to acquire the firm for $345M.
See HipMojo.com’s posts on the deal before it happened here and afterwards here.
- eBay acquires Stumble Upon for $75M
Stumble Upon’s 2.3 million users and 5 million daily recommendations caught the attention of AOL, Google and eBay, and ultimately, after valuations ranged from $40-75M for a few months, eBay walked away the winner. When the rumor popped up and few understood the logic, though technically, like eBay’s Skype acquisition, the prevailing wisdom of the leading auction community to acquire a leader in “stumbling navigation” makes sense. Of course, that’s what was said about Skype too, and this year eBay wrote down a chunk of that acquisition, even though the fit was even stronger there. Stumble Upon raised less than $2M, which means that founders Garrett Camp, Geoff Smith, Justin LaFrance and Eric Boyd walked away with a nice payday each. Lesson for entrepreneurs: success did not come over night, the site was founded in 2000!
See HipMojo.com’s post on the deal here and here.
- Microsoft acquires Medstory
For all of the talk about vertical search engines being the next great thing, very few case studies proved to be profitable exits. Then came along Medstory and the battle for health information, which led Microsoft to acquire vertical search player Medstory as Google, Yahoo! and Microsoft all vied for search market share and to become the gateway to users’ health information online.
COMMUNICATIONS, WIRELESS VOICE SERVICES
- Google acquires Grand Central for $45M
Let’s face it, financially, Google remains a on-trick pony with 99.9% of its revenues coming from paid search ads and the two related products: Ad Sense and Ad Words. But Google’s product assortment has grown very attractive, from GMail, to Maps, Google Earth, YouTube and soon Doubleclick, Google is certainly laying down the foundation to become a diversified new media and technology company. In that vein, the acquisition of Grand Central to arm users with one number on any platform is consistent with Google’s global and multi-platform ambitions. In fact, at $45M, the deal was cheap and provided good value to Mountain View.
- Microsoft acquires TellMe for $800M
TellMe is “a leading provider of voice services for everyday life, including nationwide directory assistance, enterprise customer service and voice-enabled mobile search.” If the price tag weren’t so darn high, it would surely be higher on this list. Regardless, this catapults MSFT into voice services and voice-enabled mobile search, which a few short years from now will actually help it quite a bit against the #1 and #2 in search, Google and Yahoo!, respectively. While $800M is a large price, if it can execute on that alone, the deal can be a enormous coup for Redmond.
MOBILE AD NETWORKS
- AOL acquires Third Screen Media
Indeed, to quote the Wall Street Journal’s Kara Swisher, new CEO Randy Falco has been busy torching AOL’s Dulles, Virginia’s HQ, but while he’s been doing that, he’s also been making some bets on the next growth area: wireless. In 2007, AOL bought Third Screen Media, a mobile advertising network and ad-serving management platform provider. Will this be a repeat of Advertising.com’s $435M which today drives most of AOL’s top line? Who knows. I doubt it, wireless is way too embryonic, today. But one day, when cars fly and everyone has a pony, wireless entertainment and mobile advertising shall inherit the earth. Time will tell if Randy Falco will be ruling the fiefdom when that happens.
- Nokia acquires Enpocket
In the emerging mobile content and advertising market, Nokia hopes to expand its footprint beyond hardware. To achieve its goal the handset manufacturer agreed to acquire Enpocket to build its advertising platform.
Though Nokia has a content and advertising presence in Europe, its wanted to expand there and elsewhere, including the U.S., through internal development and acquisition. The Enpocket acquisition follows Nokia’s buy of social media sharing service Twango, as well as internal moves toward content publishing.
Enpocket has customers in the US, Asia, and Europe, including Vodafone, Telefonica, British Telecom, and Sprint. It delivers advertising across a variety of mobile formats, including SMS, MMS, mobile Internet, and video. Its customers include both carriers and the companies with which they do business, most notably Pepsico.
In some ways, this deal was in the same vein as Microsoft’s acquisition of European mobile ad firm ScreenTonic with the intention of integrating its capabilities into adCenter: “We want to deliver a platform that helps advertisers buy across all digital mediums,” said Joe Doran, GM of Microsoft’s digital advertising solutions. “As we build out the breadth of our platform, we are continuing to invest against that vision.”
- Nokia acquires Navteq for $8.1 Billion
Nokia is the world’s largest manufacturer of cell phones. Nokia owns this market, basically, and any acquisition it makes is bound to have ripple effects. NAVTEQ is a leading provider of comprehensive digital map information for automotive navigation systems, mobile navigation devices, Internet-based mapping applications, and government and business solutions. NAVTEQ also owns Traffic.com, a web and interactive service that provides traffic information and content to consumers. The Chicago-based company was founded in 1985, generated 2006 revenues of $582 million and has approximately 3,000 employees located in 168 offices in 30 countries. Incidentally, “Internet and wireless” make up only 5% of Navteq’s revenues, compared with 25% from mobile devices and a whopping 62% from in-dash navigation systems.
Translation? Lots of upside in Web and mobile revenues and the creation of a very powerful wireless and local ad network, perhaps?
AD NETWORKS
- AOL acquires Tacoda for $275M
One of the bigger and hyped phenomenon (fairly or unfairly) of web advertising remains is behavioral targeting (BT). Rightfully, to better optimize inventory and users, and to make the promise of web advertising a reality, BT has a role to play. But AOL’s acquisition of BT also demonstrated BT’s inherent limitations: few sites want to partner with BT firms, they want to own the data and underlying IP. Will it be an Advertising.com type of payoff? Time will tell, but Tacoda within AOL is worth far more than outside, in that sense, this deal made sense…
See HipMojo.com’s post on the deal here.
- Google acquires Feedburner for $100M
Google paid $100M for a company with $10M in revenue. Regardless of the financial merits of the deal, the fact is that had Google sought to emulate Feedburner (even had Feedburner not existed), the media companies that partner with Feedburner would not have allowed Google to access such private and valuable data. In other words, Google bought something that was worth many times more to Mountain View as in a year where it had become more and more enemy than friend.
See HipMojo.com’s post on the deal here, Google Buys Feedburner and Encroaches on Organic Ad Results.
- Yahoo! acquires Blue Lithium for $300M
Blue Lithium’s focus on introducing large, sexy brands to the virtues of advertising networks is legendary. Before more and more larg, Fortune 500-type marketers embraced running online ads - let alone using ad networks - Blue Lithium stood out of the clutter with a product and service that appealed to both sides of the online advertising ecosystem. Once upon a time, Blue Lithium’s management even talked of its advantages and strengths over online ad champion Google, but then lo and behold, Yahoo! acquires Blue Lithium for $300M to maximize the monetization of its ad inventory and to bolster its online advertising network both outside Yahoo!’s burgeoning media properties.
Given that the next wave of growth in online advertising will be display / banner ads (after video) and that will come from Fortune 500 marketers, this is a move that can pay off considerable dividends to Yahoo!
See HipMojo.com’s post on the deal here and here.
- Google acquires Doubleclick for $3.1B
Technically, this deal has yet to go through. But we added it onto this list because it shows that Google is completing its arsenal of web tools. Starting off with search, then video (YouTube), then email/newsletter (Feedburner) and now display/banners (Doubleclick), Google has the potential to circle the loop of online advertising.
We’ve covered this deal ad nauseum, so we’ll simply link back and leave you with this quote from one of our posts:
“When a lot of people said Google just hit a home run in online advertising by buying DCLK, they were wrong because saying DCLK is an online advertising play is akin to saying MSFT is strong with ad agencies because ad agencies use powerpoint in their client pitches. DCLK sold all of its media assets to L90/MaxOnline when ad rates were low and no one really paid CPM rates, and got into software only”
But, that notwithstanding, Google buying Doubleclick is a key deal because it bolsters Google’s online advertising software suite, which in itself helps it attack MSFT on many more fronts.
See HipMojo.com’s post on the deal here:
- Google Buys Doubleclick for $3.1 Billion; Blocks MSFT Acquisition
- Questions in Wake of DCLK/GOOG Deal; MSFT/YHOO Repercussions?
- Two Variables in DCLK/GOOG Deal: Dart for Publishers/Advertisers; All Cash Deal
- Why GOOG’s DCLK Makes Little Sense (To Me)
- DCLK Winners: Hellman & Friedman; Losers? DCLK’s Shareholders?
- aQuantive Under Spotlight
- Yahoo! acquires Right Media for $750M
Technically, Yahoo! paid $45M for 20% of Right Media first, then less than a year later, it paid $680M for the 80% it did not own. Right Media was unique in that it worked with other ad networks to allow publishers to create an auction process for a publisher’s long tail inventory. On a property like Yahoo! alone, with billions upon billions of remnant, unsold ad inventory, such a platform can be worth billions each year.
And, as Yahoo! develops its network online (away from Yahoo!-owned sites), Yahoo! liked what it saw enough to justify pushing up the price of the asset four times in less than a year.
See HipMojo.com’s post on the deal here.
- WPP acquires 24/7 Realmedia for $649M
WPP is one of the largest agencies in the world, a marketing behemoth with huge ambitions in digital advertising. It got one step closer to that when it bought 24/7 Realmedia, getting an advertising network, an email newsletter business, search marketing tools and much more. With its extensive advertiser relationships, WPP is sure to get enough bang out of its $649M bucks.
See HipMojo.com’s post on the deal here.
- Microsoft acquires aQuantive for $6 Billion
Microsoft generates very little from advertising. In the future, all advertising will be planned, bought and managed on digital platforms. And digital advertising will be larger than all offline advertising. Furthermore, targeted/tracked (web) advertising will command a considerable premium to non-targeted and untracked advertising. As such, for MSFT to win aQuantive - the crown jewel in the sector - it had to pay a commanding premium.
Like it or not, the market determines how much an asset is worth, which in turn is a function of demand and supply. aQuantive had a range of suitors, and the company that wanted it most ended up paying for it. MSFT’s acquisition of aQuantive can be a game-changer for MSFT if it does not botch it up.
See HipMojo.com’s post on the deal here.
- Time Warner acquires Quigo for $340M
Quigo, which signed a deal with Time Warner’s magazine division, Time Inc, and has more than 500 publisher relationships, is an Internet ad-targeting company that lets advertisers buy sponsored listings, much like Google’s AdSense, based on keywords or subjects.
AOL in September restructured its advertising business, consolidating ad network Advertising.com; Tacoda, which targets users based on their habits; wireless ad network Third Screen Media; video ads company Lightningcast; and ADTECH, a global ad-serving company, into one division.
What did you think of the list? Corrections, suggestions, comments etc., add to comments or email me at ash@mojosupreme.com.
There’s no doubt about it: Facebook is the 2007 company of the year (vote for your pick). See our previous picks here.
But, when it comes to 2007’s story lines, the top one will be all about M&A in general, and M&A in ad networks in particular:
- MSFT buys aQuantive for $6B
- Yahoo! buys Right Media for $725M (paid $45M for 20%, then $680M for 80%, ultimately valuing RightMedia at a most impressive $850M at its exit)
- Yahoo! buys Blue Lithium for $300M
- WPP buys 24/7 Realmedia for $680M
- Google buys Doubleclick for $3.1B
- AOL buys Tacoda for $275M
This week we heard that Specific Media raised $100M on a $200M pre-money valuation, for a $300M post-money valuation, pretty much what Blue Lithium got acquired for from Yahoo!
In this post, I won’t comment on valuations and what not, we’ve done that before. What I want to comment on is the fact that apart from 24/7 RealMedia, Doubleclick and aQuantive, Specific Media, Blue Lithium and Right Media are all relatively new, or second generation ad networks that launched or scaled after the bubble blew up (Specific Media’s precurson, AdvertisementBanners.com dates back to 1999 and they were a major player in the pop up and pop under space but have evolved into a major player in premium publishers who have excess inventory and need something different). The company’s come a long way:
The Irvine-based startup has come a long way in the eight years since its chief executive, Tim Vanderhook, decided to go into business with his two older brothers, Chris and Russell. At the time, Tim Vanderhook was just 19 years old.
I worked with all of these companies when I was VP of Ad Sales for a mid-sized publisher and trust me, then Right Media, Tribal Fusion or Specific Media were trying to carve market share after the bubble burst, people thought they were crazy. I recall exchanging emails with the Vanderhook brothers and it’s nice to see them evolve into what they are today:
Since then, Specific Media has built one of the Internet’s largest ad-targeting systems. The network reaches a combined U.S. audience of about 130 million, spanning hundreds of Web sites, including those of ABC, NBC, CBS, Fox, ESPN and Major League Baseball.
Specific Media hopes to become even bigger by using the Francisco Partners cash to make acquisitions as it battles Google Inc., Yahoo Inc., Microsoft Corp. and Time Warner Inc.’s AOL.
It was obvious that over time online media would only come back, bigger and better, but at the time, I am sure everyone thought the founders were nuts.
That’s what it’s all about to be an entrepreneur: going against the grain and finding an opportunity when others only see threats…
First Round Capital is raising a $75M - $100M fund… the firm’s backed firms like Stumble Upon and Video Egg…
Interesting to see that they’ve also passed up on (and partner Josh Kopelman sheepishly/proudly admits to it, too…) both Right Media ($800M exit to Yahoo!) and, hmm… YouTube ($1.65B exit to Google).
Gotta love blogs.
Background
On March 27th, I suggested that MSFT should spin MSN.com/Live.com into Yahoo! In fact, afterwards a reader even sent me a link to John Battelle’s like-minded suggestion, time-stamped March 13th.
Bear in mind that last year, it was widely reported that Merrill Lynch analysts etc. suggested an all-out buyout of Yahoo! by MSFT, which at the time I did not think would be possible given YHOO’s desire to remain independent.
Recent Developments/The Rumors Start Again
Today the rumor mill began again, after Google bought Doubleclick and Yahoo! bought Right Media, Yahoo!’s appeal to MSFT only shot up. YHOO is my biggest holding in my portfolio, I am actually doing a live post on whether I’ll sell or not today here.
And of course, Terry Semel is doing the keynote at MSFT’s shindig. Things that make you go hmm…
From Marketwatch:
The New York Post and The Wall Street Journal reported that Microsoft may want to buy the firm in what could be a $50 billion deal.
Microsoft’s interest may be piqued by Yahoo’s recently announced intentions to buy Right Media to strengthen its display-advertising business. The deal “better positions Yahoo to compete with Google in display,” Bear, Stearns & Co.’s Robert Peck told clients.
Yahoo and Microsoft reportedly have held talks within the past year but couldn’t reach an agreement.
A spokesman for Yahoo said the company wouldn’t comment on market speculation. Microsoft, in a statement e-mailed to MarketWatch, said: “At this time, Microsoft has no comment.”
The Post, citing anonymous sources, said Microsoft has intensified its pursuit of Yahoo and has requested formal talks. Analysts say Microsoft may be feeling increased pressure from Google, which recently bought DoubleClick for $3.1 billion.
The Journal suggested that Microsoft could go for a smaller deal, spinning its online group into Yahoo in return for a stake in Yahoo.
Hmm… where have we heard that before?
Of course, everyone is adding their two cents, and that’s great, here’s one of my favorite observations, from Adam Lashinsky of Fortune blogs:
The article reads like banker talk: Investment bankers on one side or the other (or, better, a banker who couldn’t get a seat at the table) chatting up a deal to get things moving.
A Shareholder Asks: What Are Yahoo!s Options?
I’m asking myself: should I sell my holdings? I had a nice gain wiped out after Q1 results when YHOO let one rip and everyone in the room heard it. At the time I reiterated the pros of spinning a new MSN/YHOO online entity, but also reiterated the virtues of going private, where I believe YHOO (like DCLK) can triple in value by doing so.
I would like to stress that by now, this idea of spinning MSFT’s MSN/Live.com and YHOO in a separate company (outside of MSFT) is pretty much agreed to be the best solution. Henry Blodget is blunt and right on about why here.
And of course, Paul Kedrosky comes out and points out the inherent foolishness of doing just that:
Some people are saying that Microsoft needs to spin out its “Internet” business and combine that with Yahoo. Newsflash folks: This is 2007, every technology/software business is an Internet business. If you want to make the argument that MSFT needs to carve out media and advertising then make it, but don’t conflate media/ad with Internet and pretend the latter still remains a distinct category, because it doesn’t.
Pretending there are are Internet and non-Internet aspects to a tech company like Microsoft is like pretending you can have peeing and non-peeing sections in a swimming pool. It doesn’t work.
That’s precious, what a gem (almost as good as my line that if “prostitution is the oldest profession in the world then the oldest habit in media is publishers prostituting themselves for advertisers” here, but we’re sidetracking now). But indeed, I see that “This is 2007, every technology/software business is an Internet business,” and indeed my argument is to combine the “online advertising and search units,” hence why in my earlier post I explicitly say “spin MSN.com/Live.com into Yahoo!” and not “spin the Internet stuff out.” Though even then, I sort of see that one major reason for this kind of deal is the fact that software and online advertising will coexist sooner than later and this is done to offset Google’s foray into MSFT’s software.
Deal Structure: All-Cash, All-Stock, Half-Half?
MSFT has $25B in cash, according to Yahoo! Finance. While it won’t hand over every penny its got in its corporate coffers (and issue the rest in stock in a 50-50% cash/stock deal), it does generate something like $1B per month in free cash flow. Then, there’s debt. MSFT can easily raise debt, plenty of it, and pay YHOO shareholders $50B in cash.
MSFT is a growth and value stock at once, as a YHOO shareholder, I’d ask for a 50-50% deal. Note, that I owned MSFT for a while, getting in at $22 and selling at $30 this past year. Did I think there was no upside at $30? Not necessarily, but a combined MSFT/YHOO would represent some nice upside, though there are operational, cultural and financial risks for sure.
Tale of the Tape
Before this rumor crept up, YHOO’s valuation was at $32 billion. According to PaidContent.org, YHOO’ shares surged in overseas trading on news of the talks, raising the company’s market value to around $38 billion on Friday. Now the rumor has shot the valuation to $44B.
If this happens and MSFT buys YHOO for $50B, I make an additional 13%, if I sell now - that assumes that this deal won’t happen - I make a decent return and effectively end my three year support and love affair with YHOO. Of course, if the deal does not happen, does the stock fall back down to what it was at a valuation of just less than $37B?
Disclaimer: If it hasn’t been made super clear yet: YHOO is my biggest holding. See what goes through the mind of an investor here. Anyway, I’ll write more throughout the day.
The headline of this post ends with !? because Yahoo!’s name includes a “!” and the sentence is in fact a question.
But, even were it not the case, upon finding out that Yahoo! had shelled out $680M for the 80% of Right Media it did not own (after paying $45M for 20% of the company six months ago), any headline would have been followed by !?$%$(*&#.
The Business Model: Do ya get it?
When Right Media launched in 2003, I got a call in my capacity as VP of Ad Sales of an online publisher. Right Media told me what they did: in the words of a current executive, Right Media is ”an enabler that provides tools and techniques to participants and creates a virtual space to do business more efficiently. We serve like a stock market, we price display ad inventory and allow participants to discover as much as players allow to be discovered within the ecosystem and we make the data transparent…”
In 2003, I spoke to a couple of brothers who worked at Right Media, they wanted me to grant them a portion of our ad inventory for them to price and auction off to other networks. We did 250M ad impressions per month, and we sold out some 75% of the ad inventory, the remaining 25% we doled out to networks. These networks paid us anywhere from $0.25 CPM to $1 CPM. On the premium inventory, I’d be able to sell that for anywhere from $1 CPM to $20 CPM.
CPM stands for cost per one thousand of ad impressions. For more on CPM and other terms, as well as a landcape of all of the participants of the online ad ecosystem, click here.
A Practical Example
At the time I was as cordial as could be, but I did not have much time to allocate to Right Media’s offering, because we generated $190,000 per month from the 75% of our ad inventory that we sold out to advertisers large and small, and made about $10,000 from the networks. Even if that grew 100%, to $20,000, I figured that my time would be better served focusing on the 75% of premium inventory that we had.
To some extent, I was right. To some extent, I was wrong.
We had 250M ad impressions, selling out 75% to premium advertisers was feasible. When you are a large publisher with billions of ad impressions, you tend to sell out even less. At the end of the spectrum, for sites like MySpace and Yahoo!, you sell out a lot of less and are left with remnant inventory.
Long Tail of Ad Inventory
Yahoo! sells out a lot more of their inventory as premium compared to MySpace, the reasons for that are numerous, but one major one is that MySpace is user-generated content and less desirable to advertisers. If you add all of the variables and consider that today user-generated content accounts for more aggregate traffic than adult content does, you start to understand that times have changed, and many people found value in Right Media’s - and networks’ in general - offering.
Right Media, knowingly or unwittingly, was positioning itself for the burgeoning traffic coming from the explosion in user-generated content. This is not to say that all of Right Media’s business emanates from user-generated content, it’s to demonstrate one source of demand for Right Media’s offering, an exchange matching buyers with sellers of ad inventory in an auction format.
That last part, my friends, is the key. What eBay did for Pez dispensers, Right Media sought to do for the $20B online ad industry. In other words, the ad inventory I represented was largely irrelevant to Right Media, but the large majority of the ad inventory that was to mushroom online would be a perfect fit for Right Media.
Times, They Change
Fast forward that to yesterday’s announcement that Yahoo! was paying $600M+ for Right Media’s 80% that it did not own.
Don’t get me wrong, I am not saying the deal was a bad one, I am saying that as both a writer covering the space, someone who had worked with Right Media in the past, a shareholder in Yahoo! and a web entrepreneur positioned in online advertising, I fell off my chair.
Some people like Fred Wilson shouted hooray, others did the opposite, questioning the rationale:
“Now that they’re owned by one of the largest sellers of space on the Web, does that make Right Media less of a middleman?” said Jeff Ratner, North American digital director of MindShare Interactive. “Will I find more of my inventory winding up on Yahoo as opposed to somewhere else?”
I am not sure, maybe, who knows? All I know is that Yahoo! has a lot of impressions, of which little is premium. Yahoo! needs a better way to monetize this long tail (hate that word, because people apply it to everything, but it does apply here…) inventory. As a Yahoo! shareholder, that gets me excited, but the flip side is that Yahoo!’s CFO Sue Decker was quick to add: “Yahoo’s shareholders shouldn’t expect to see profits from this investment until at least 12 months after the deal closes, if the companies follow through on their immediate intentions to improve the marketplace, then media planners, buyers and publishers may see the changes quickly.”
Hmm, that’s a lot of “if’s” for a company that quadrupled in value in six months. Of course, Right Media itself has soared in size, particularly since the Yahoo! 20% investment.
According to itself back in February 2007:
“Right Media Exchange revenue has increased 81% over the past six months, with 566 billion ad impressions traded during the period.”
The milestone represents only a partial measure of Right Media’s broad, substantial growth since it formally launched the Right Media Exchange last summer. In that period, the company has also seen a 50% increase in headcount, a 49% increase in Exchange membership and an 84% increase in impressions served. Over one trillion impressions have been served on the Exchange since the company launched its auction platform in April of 2005.
“All signs point to the fact that the digital advertising market is embracing the exchange model,” said Right Media CEO Michael Walrath. “Buyers and sellers on the Right Media Exchange are getting a fair opportunity to develop new relationships, increase scale and drive more value, and they’re clearly taking advantage of it.”
There are currently 127 network, advertiser and publisher members with seats on the Exchange, including Yahoo!, Fox Interactive Media and LookSmart. Exchange members represent over 6,000 buyers and 13,000 sellers. More than 175,000 creatives are currently active in the Exchange.
There are cases where Right Media has done wonders, ZDNet points to Tickle.com as an example where it saw a 771% spike in revenue. That’s not bad at all. I wonder how much the $10,000 I generated from 25% of our non-premium inventory would grow at a growth rate of 771%. Of course, demand for online ads have changed quite a bit since then, but you get my drift.
Value is in the Eye of the Beholder
Is Yahoo! getting something valuable? Of course.
Would I pay $800M for it? Well, as I said yesterday, iVillage fetched $600M, MySpace parent Intermix got $580M and my former one-time employer IGN got $650M from News Corp. Of course, this was all over two years ago. Last month, Google paid $3.1B for privately held DCLK.
Wait a minute… Right Media too is privately held… could it be suddenly that public shareholders are showing restrain while their private brethren are not? Of course, Right Media and Doubleclick were acquired, not by public shareholders directly, but by managers of these, at Yahoo! and Google respectively.
When the Google/DCLK deal went down, I wrote aplenty on that:
- Google Buys Doubleclick for $3.1 Billion; Blocks MSFT Acquisition
- Questions in Wake of DCLK/GOOG Deal; MSFT/YHOO Repercussions?
- Two Variables in DCLK/GOOG Deal: Dart for Publishers/Advertisers; All Cash Deal
- Why GOOG’s DCLK Makes Little Sense (To Me)
- DCLK Winners: Hellman & Friedman; Losers? DCLK’s Shareholders?
- aQuantive Under Spotlight
One of my main points of contention in that deal was that saying that DCLK gave Google an “in” into the display business was akin to saying that MSFT was in real tight with ad agencies because agencies use powerpoint in client pitches, in other words, DCLK’s strength was in software, and not media, ever since it unloaded its media business to MaxOnline/L90.
One reader of this blog who agreed was Right Media’s own Vice President Bennett Zucker, as he commented to one of the old posts.
I’d argue that Google was practically reckless in paying so much for DCLK, and Yahoo! showed some eagerness to maintain its lead in display advertising, and perhaps arguably fear as well, and Right Media did the sensible thing for its shareholders by gladly accepting this offer. Their venture capital backers Redpoint must be ecstatic, as are the staff at Right Media.
I spoke to Bennett today about the deal.
Hailing from the world of publishing, Zucker serves as an evangelist for Right Media’s exchange, trying to convince publishers to give it a try. He’s also served some time at Tacoda (wouldn’t they love an exit like this one, by the way?) in the area of behavioral targeting…
I asked Bennett:
Q: What on earth transpired between last fall and this spring besides Christmanukwanza?
A: “We had been working with Yahoo! for a year before the 20% investment materialized, and Yahoo! did a lot of tire kicking before it became a customer. Yahoo! has since been trading a lot of its non-premium, and I mean deep, real deep inventory on the exchange. And, the result validated things and they were really successful.”
Q: Did other companies show an interest to invest or buy them afterwards?
A: “Once that happened, the floodgates opened and all lingering doubts evaporated.”
Q: What was it that made Yahoo! value you so much more today than they did six months ago?
A: Sue Decker pointed out three things in her analyst call yesterday:
1 - increased value of YHOO’s own inventory;
2 - extend YHOO’s inventory across the Web;
3 - create new businesses working together.Q: Do you expect changes in structure, personnel?
A: We had aggressive hiring plans, and they got more aggressive. CEO Michael Walrath will now report to Sue in Sunnyvale.
Q: Is this an answer or challenge to Google, or are we all supposed to think it’s not?
A: We were working with Yahoo! months before Google and Doubleclick closed, so while it is certainly related in some ways, it’s not totally coming out of nowhere.
Q: Fair enough, but isn’t this an acknowledgment or admission by Yahoo! that they see little growth in their core premium inventory and need to look at non-premium?
A: Clearly there is a lot of value in boosting rates on non-premium, which runs deep on Yahoo!, but I would not rule out high-end opportunities.
Q: Are we in a period of euphoria? I mean, Yahoo! paid what they did for you, good for you. But today we hear that MSFT might buy TFSM for $1B, which is madness, it was worth $400M on Nasdaq two weeks ago… I would not call it a bubble, because stock prices of TFSM, AQNT (a stock I own) and VCLK actually fell because an analyst at Citigroup cut the rating for AQNT… which shows some common sense… but don’t you get a sense that something is off?
A: Well, we certain are happy and euphoric. We will obviously eventually reach a limit. But in the end we feel that we can do a lot with Yahoo!
As a Yahoo! shareholder that just paid a chunk for your business, I sure do hope so.
Interestingly, while everyone got excited about this, the main story of the day - in my humble opinion - was Comcast’s deal with Yahoo! That was a great one. Read more about the details here. Of course, the irony of it all is grand, Yahoo! just got the right to sell ads on Comcast, which means a little bit more of premium ads with a helluva lot of non-premium inventory… having Right Media in-house might make that deal even better.
One of the best things - ie. most reassuring - is that the stock market is not exuberant.
Today, Yahoo! bought the 80% of Right Media it did not own for over $600M, valuing the entire company at over $800M. To put this into context, NBC bought all of iVillage for $600M, News Corp. bought Intermix (MySpace’s parent) for $580M, and all of IGN for $650M. All of these deals took place less than two years ago.
Just last month, of course, Google bought privately held Doubleclick for $3.1 billion, effectively raising the price for peers such as Right Media. When I read this, I thought “that’s a home run for Right Media,” because by staying independent it would invariably face competition for Google/Doubleclick, but I also thought: what would that do to 24/7 RealMedia, Valueclick, aQuantive and other publicly traded firms.
Disclosure: of the companies mentioned, I own shares in YHOO and AQNT.
While some people had called for heightened demand for TFSM, AQNT and VCLK amid the DCLK buy, it was a no-brainer that YHOO would not be in the running for TFSM, AQNT and VCLK, since it already owned 20% of Right Media and backing TFSM, AQNT and VCLK would have an adverse effect on its investment on Right Media… but nonetheless, seeing Right Media shoot up from a valuation of $200M to $800M in a matter of months suggested that the implicit value of TFSM, AQNT and VCLK would rise, and not fall.
Today, the stock prices of all three TFSM, AQNT and VCLK fell, but not because of the fact that YHOO buying Right Media translates to one elss suitor for these firms, but rather, because Citigroup analyst downgraded AQNT (bad analyst, bad analyst).
Jokes aside, this was a welcome move by any sane and rational investor. Sure, short term I would have liked an additional spike in AQNT’s shares, but having seen the stock spike 30+% year to date, this $1.86 fall in AQNT’s stock price suggests that it will be easier for it to surpass expectations and or up guidance. Please note that this is an observation - and at the very most a wish from an investor - and not a recommendation to buy or sell any of the securities mentioned above.
I know a few people at Right Media and began to track them all the way back when they launched when I was VP of Sales at a publisher, so I am very happy for them in this stock/cash deal, but the rapid spike in valuation in a matter of months shows - like the DCLK deal showed as well, that the private market for securities is a lot more irrational than the public markets…
Or, maybe, both markets are equally rational / irrational and ’tis the market for all things digital that is hot… I do wonder what this means to the valuation of companies such as Tribal Fusion, Blue Lithium and other privately held online advertising companies…
PLAY
