Metue.com

Google the Gatekeeper?  Is Google trying to become the defacto middle-man for advertising placement across both new and traditional media?  Will a prospective company be able to go to Google a year from now and order advertising placement as if at a buffet: “give me 2 radio spots, 1 tv hit, and a ¼ page in these three papers alongside these keywords and this text placement?”

The answers are probably no, but with increasing efforts to participate in placement of tradition media advertising – including in radio (through acquisition of dMarc), print (partnerships with newspapers), and television – alongside its dominant Internet search advertising services, these seem questions worth asking.  It’s almost impossible not to speculate about them.

Today, adding fuel to that kind speculation, Google announced the acquisition of Adscape Media, a small one year old startup that was focusing on providing advertising for the video game industry (termed “in-game” advertising).

Click to Read More

Today eBay closed its acquisition of online ticket reseller Stubhub. Less closing costs and fees, the deal, which was announced on January 10th closed at a purchase price of $307m with approximately $21m of net cash.

The purchase, unlike many that have followed since eBay’s shrewd acquisition of Paypal in 2002 for $1.5b, seems a natural fit to eBay’s core retail/auction business lines. Stubhub, which was founded by two classmates from Stanford’s GSB (who held approximate 25% of outstanding shares at the time of the sale), acts as a middle market for for person to person resale of event tickets. It has market-leading position in the growing market for secondary sales of event tickets. (IAC’s Ticketmaster is the leader in primary sales and MusicToday, which is owned by Live Nation, dominates the sale of Direct-to-Fan ticketing)

In December, 2006 the Stubhub site was the 5th most visited ticket vendor with 2.1m unique visitors according to ComScore Networks. (The Top 4: Ticketmaster with13.3m, Moviefone with 12.8m, Fandango with 5.4m and Movietickets.com with 4.8m). For the prior fiscal year, Stubhub’s revenues were close to $100 and earnings (EBIDTA) were approximately $10m. Those numbers puts the transaction price at a rich multiple of approximate 30x revenue. That’s a big premium, arguably too much of one, but compared to the purchases Click to Read More

When it comes to mergers and acquisitions, there are some deals that you can almost see coming but then there are others that hit you like something falling out of the sky.  Cisco dropped a small bomb from above when it announced today it was acquiring small social network platform developer Five Across .

Five Across was founded in 2003 by software developers from Apple computer and Adobe Systems. They set out to create a rapid deployment platform for creating and publishing web communities (and social networks) and integrating dynamic content in to them.  Put another way, their idea was simple: web communities are popular but time consuming to build.  Create a rapid deployment platform and corporate customers can use tools to create their own interactive web communities; sites where they can engage fans/customers and enhance their brands.   

At the time of the acquisition, Five Across software is beyond beta and in the market. The NHL with its NHL Connect fan website (currently listed as being in beta)is one of the notable first customers.

On the face of it, thinking purely about revenue, acquiring Five Across seems a curious choice for Cisco.  Buying a software developer, let alone one that hasn’t sold a lot of product, is a move away from Cisco’s core business of selling network routers and switches, or even its consumer networking product lines (through Linksys and Scientific Atlanta). 

Fortunately, direct impact on bottom line isn’t the only purpose of an acquisition.  In this case, there are several ways the acquisition could be to be complimentary without direct contribution.  Click to Read More

Yesterday, I commented on the size of the M&A market for 2006 and promised a more detailed analysis of what it might mean for 2007.  I’m still thinking about that and I’m not ready to take the side of the Bulls or Bears nor am I sure how it will impact the entertainment, media and technology crossover companies that are the  focus of Metue.

Instead of making an unfounded prediction, in the spirit of being cautiously optimistic, I’m going to focus on what happens when money follows money because it represents a risk factor for what lies ahead.

Money follows money: taken literally, the statement is an often unstated, but nevertheless, common behavior in investing.    It makes sense in a simple way – if an investment is providing a good return you’d want to put more money in it and derive even more gain.   It’s the nature of riding the wave.  People follow the trends that are successful.  It’s also part of how investment bubbles are built, and how they burst.

Within the Venture Capital world, or more broadly, within Private Equity markets, there is a limited amount of deal flow that can be managed by Fund Managers in a given time period.  A Venture Capital Fund with 4 Partners might not have the capacity to intelligently invest in more than 5 deals per year (these investments, after all, may take several years of ongoing commitment before liquidity or failure).    If demand for the partners’ investment management services increase, however, something has to change.

Imagine a firm called Bubble Limited Investment Partners (BLIP).  BLIP’s first fund, Bubble I, had the leading Internal Rate of Return (IRR) among similar funds over its lifespan.  The performance was so good, in fact, that other investors want a chance to participate.

So, when the partnership pitches a new fund called Bubble II to their investors, the investors, happy with the return on Bubble I, increase their investment with the partnership, through Bubble II, by 50%.  Additionally, a whole new group of investors that didn’t participate in Bubble I want in on Bubble II.   If Bubble I was a $300m fund, Bubble II is now oversubscribed at $700m. 

Click to Read More

Some will say 2006 was the year of Mergers and Acquisitions.  The big five Wall Street investment banks (Merrill Lynch, Bear Stearns, Goldman Sachs, Lehman Brothers, and Morgan Stanley) had record profits.  The total value of acquisitions topped $4 trillion, easily besting 2000’s record $3.3 trillion according to tracking firm Dealogic.  Private equity firms accounted for more than 18 percent of that total by spending more than $720b to take companies private.

As news and analysis of the year trickles out, some are reporting that these same firms have more than $2 trillion in buying power going in to 2007.    

A small sampling of deals from the past year:

Two Tech infrastructure giants bought themselves greater involvement in Internet media distribution:

• IBM acquired Micromuse for $865 giving it additional software for managing video on the web. 
• Cisco acquired set top box maker Scientific Atlanta for $5.3b, thereby positioning Cisco for IPTV markets.

Old school animation and new digital methods officially married:

• Disney acquired Pixar for about $7.4b thereby increasing its resources for digital animation and providing it with a stronger footing to compete against companies like Dreamworks Animation and Imagi.

Newspaper publishers considered consolidation strategies as online services continue to encroach on their traditional offerings:

• McClatchy acquired Knight Ridder for approx $4.5 plus assumption of $2b in debt, thereby significantly increasing its newspaper publishing

Internet video got competitive and Google went shopping for…just about everything?:

• YouTube (for $1.65b)

• dMark (radio advertising platform for $102m)
• Measure Map (blog analytics)
• @Last software (Sketchup c.a.d application)
• Jotspot (wiki’s)
• Neven Vision (biometric identification- for use with Picasa photo archiving)

Privacy makes management easier: Radio and Major media ranking and review companies went private:

• Private equity firms including KKR, Thomas Lee Partners and the Carlyle Group acquired the shares of Dutch conglomerate VNU with the intent to privatize the company and improve its performance.  VNU holds, among other properties, media research and ranking firms ACNielson, Billboard and Net Ratings.  The company also publishes the Hollywood Reporter, Adweek, Billboard and other magazines.
• In a separate, but huge, pending deal, private equity companies are trying to acquire Clear Channel, owner of over 1100 Radio Stations among other entities for over $18b

It’s not unlikely that in 2007, private equity firms will play an even larger role in the media and entertainment sector than they have in the past few years.  Established companies will continue to have to evaluate what represents core and strategic businesses amidst changing technologies and may seek to divest non core, or under performing, areas, or acquire other pieces for the future. 

Areas that generate solid cash flows like gaming, publishing, broadcast and content catalogs are likely to get some speculation and scrutiny.

Tomorrow, after I’ve had more time to think about it, I’ll have some analysis about what this might mean besides the obvious prediction that there will be a lot of M/A activity in 2007 and at least a few large private equity investments.