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July 2012

Independent Investment Banking for Media, Information, Marketing Services & Technology

PE Investors See Robust M&A Activity Ahead

In This Issue... PE Investors See Robust M&A Activity Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

The Jordan, Edmiston Group, Inc. (JEGI) offered a select group of private equity executives that invest in the media, information, marketing services and technology sectors the opportunity to provide their keen insights on the current state of their funds’ investment activities and their outlook on the market:

Active M&A Market Continues, Led by Marketing & Interactive Services . . . . . . .1 Digital M&A at the Event Horizon . . . . . .4 SIIA Strategic & Financial Investment Conference . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Exceptional Transaction Experience . . . .8

1. What key market forces will impact your investment activities into 2013? How active do you anticipate being in M&A over the next 12-18 months?

JEGI hosted its first Emerging Company Dinner of 2012 on May 17th at the 21 Club in New York City.

2. In which market sectors within media, information, marketing services and technology are you looking to invest and why? 3. What is your view of the debt market today and over the next 6-9 months? How is it affecting transactions and multiples? For your transactions, what is your optimal mix of equity, senior and mezzanine debt?

(From left) Lance Maerov, SVP, Corporate Development, WPP; Wilma Jordan, CEO, JEGI; Tolman Geffs, Co-President, JEGI; Matthew Egol, Partner, Media & Entertainment, Booz & Co.; and Randall Rothenberg, President & CEO, IAB

Here are their responses: Andy Davis, Managing Director BV Investment Partners

(From left) Brian Keil, VP, Strategy & Business Development, Arbitron; Henrique De Castro, President, Global Media, Mobile & Platforms, Google; and Kurt Abrahamson, CEO, ShareThis

We anticipate M&A activity to be quite robust over the next 12-18 months. This year, BV is on track to have 6-8 realizations, mostly to strategic acquirers. We continue to find high growth, attractive companies in information services and communications, as these areas are growing much faster than the economy, due to long-term secular growth trends.

To subscribe to JEGI’s Client Briefing Newsletter: Follow JEGI on Twitter:

652 $65.8

$60 ($ billions)

$50 $40




500 400 $31.7





700 600



$30 $20





300 200 100



0 1h 2005

1h 2006 value

1h 2007

1h 2008

1h 2009


1h 2010

1h 2011

1h 2012

source: jegi transaction database

Despite dramatic improvement since 2008, debt markets are still very discriminating; we expect the debt markets to remain open to credit worthy buyers. We focus on creating value through growing earnings, so don’t typically try to maximize the leverage on our deals. We keep the balance sheets of our portfolio companies relatively simple. Walter Florence, Managing Director Frontenac Company

In the past two years, Frontenac has bought six new platform companies and has sold seven portfolio companies, and we see that momentum continuing into 2012. As a firm, we are still focused on investing behind strong management teams that see an opportunity to build a market leading company; we call it “CEO1st” investing. We have also been uniquely focused on the family and founderowned business market, with over 220 such transactions completed. If the economy continues to slowly strengthen, or even holds, deal flow should continue to grow, with the help of strong debt markets. (continued on page 6)

Active M&A Market Continues, Led by Marketing & Interactive Services

First Half M&A Transactions and Value $70

Over the past decade, the firm has primarily invested in high growth, mission critical, information services companies. BV takes a thesis-driven approach to investing in higherthan-average growth segments of the economy, within the information sector.

Mergers and acquisitions in the media, information, marketing services and technology sectors continued at a fast clip in the first half of 2012, as the number of deals rose 52% over 2011 levels. Announced transaction value increased 49% to nearly $32 billion, primarily due to a few multi-billion dollar transactions, with the balance of market activity centered around mid-sized transactions. Overall, acquirers have been focusing on smaller, complementary acquisitions, with nearly 95% of transactions in 1H 2012 at values of less than $100 million. Only five deals exceeded $1 billion in value, including Alibaba Group’s pending acquisition of 20% of its shares from Yahoo for $7.1 billion, and the $3.3 billion buy-out of TransUnion by Advent International and Goldman Sachs. (continued on page 2)

Active M&A Market Continues, Led by Marketing & Interactive Services (cont. from p. 1) The majority of the deal activity in the first half of 2012 took place across the interactive, marketing services and technology markets. B2B and B2C Online Media & Technology, Marketing & Interactive Services, and Mobile Media & Technology accounted for 79% of total deals and 75% of deal value for the period.

lion in 2012 and representing a CAGR of -ARKETING)NTERACTIVE3ERVICES 43%. There is a secular evolution at hand, -!BY3UB 3ECTOR and marketing dollars continue to rapidly  follow consumers. Media consumption *ANUARY *UNE continues to shift to the Internet, and now 3UB 3ECTORS .OOF 6ALUE 4OTAL $EALS MILLIONS 6ALUE to mobile, moving away from traditional !D!GENCY    media. On average, consumers are spend!D.ETWORKS    ing 26% of their media time online and !D4ECHNOLOGY    Marketing & Interactive Services 10% of their media time with mobile, $ATA!NALYTICS    $IGITAL!GENCY     There are clashing forces in the marketplace. according to Kleiner Perkins partner Mary % MAIL-ARKETING    On the one hand, there is the uncertainty cre- Meeker’s annual overview of Internet -ARKET2ESEARCH#ONSULTING     trends. Digital ad spending has started to ated by such factors as historically high unem-ARKETING4ECHNOLOGY     ployment rates and low consumer confidence, catch-up with time spent online, with -OBILE-ARKETING    22% of ad dollars flowing to the web. the Eurozone challenges in Greece, Spain and -ONITORING)NTELLIGENCE    elsewhere, as well as poorly performing bell- However, the gap is still significant with 02!GENCY    3EARCH-ARKETING    wether stocks and post-IPO hangover (e.g., mobile, as it captures only 1% of ad dol3OCIAL-EDIA-ARKETING    Zynga, Facebook, etc.). At the same time, lars. According to Meeker, closing the gap /THER    between share of time spent online/on unprecedented waves of change and innovation 4OTAL     mobile and share of advertising dollars are creating new opportunities in the market. SOURCEJEGITRANSACTIONDATABASE The explosive growth of social media – the spent online/on mobile represents a $20 “Socialization of Everythingâ€? – is transforming billion annual advertising opportunity in whole industries, such as entertainment, news, the US and points to the continuing move- Large technology companies, such as IBM, e-commerce, and gaming. Large brands are ment of ad dollars to digital media in the years Oracle, Adobe and others, are also aggressively investing in marketing technology solutions to quickly trying to adapt and are shifting dollars ahead. to interactive media and below the line market- As a result, companies are investing in market- help marketers create value from their data and ing (i.e., customer-centric communications, ing services to better assist their customers and provide customers with key business intellitypically with measurable results). As a result, capture more revenue. Advertising agencies gence and analytics, to drive better customer Internet advertising spending for Q1 2012 set and marketing services companies are retooling experiences and enhance customer engagea new record at $8.4 billion, according to the their business models by investing in integrat- ment. Oracle’s $300 million acquisition of Interactive Advertising Bureau (IAB). “More ed and interactive marketing solutions, such as Vitrue, which enables companies to manage online consumers than ever are taking to the Experian’s acquisition of Conversen, a pioneer their presence on social networks, clearly highInternet to inform and navigate their daily lives in developing interaction management tech- lights this point. These trends have made – by desktop, tablet or smartphone,â€? said nologies, enabling cross-channel conversations Marketing & Interactive Services by far the Randall Rothenberg, President and CEO, IAB. (JEGI represented Conversen in this deal). most active sector for M&A, accounting for “Marketers and agencies are clearly – and wise- According to Doug Bacon, Director, Corporate 40% of all transactions and 27% of total value ly – investing dollars to reach digitally connect- Development, Experian, “We see Conversen as in 1H 2012. ed consumers.â€? a bridge between our digital and traditional Areas of Focus for Marketing & Interactive At the same time, mobile is exploding. offerings. The concept of consistent messaging Services M&A In the first half of 2012, the ad Smartphone sales have surpassed PC sales, and, to the consumer, regardless of channel, is criti- agency and digital agency sub-sectors were the according to StatCounter, mobile traffic cal to marketing success. This acquisition most active within Marketing & Interactive accounted for 10% of Internet traffic in May becomes the glue that puts it all together and Services, accounting for a combined 34% of 2012 vs. less than 1% in December 2009. provides us with a platform to tie together our deal volume and 26% of deal value. Marketing According to eMarketer, mobile ad spend will market leading products into a single point of technology and market research/consulting were the next most active sub-sectors, each reach $10.8 billion in 2016, up from $2.6 bil- entry for our clients.â€? accounting for 16% and 15%, respectively, of deal volume for the half year. Other active sub4OP-ARKETING)NTERACTIVE3ERVICES4RANSACTIONS H sectors for M&A included data & analytics (17 deals), PR agency (12 deals), ad technology (13 $ATE "UYER 3ELLER "RIEF$ESCRIPTION 6ALUEMILLIONS deals), and monitoring & intelligence (11 deals). 3OCIALNETWORKINGPORTALSFOR -ICROSOFT










































Drivers of M&A Value The Marketing & Interactive Services sector saw only one $1+ billion transaction in the first half of 2012 – Microsoft’s acquisition of Yammer, a provider of social networking portals for enterprises, for $1.2 billion. However, there were two $500+ million deals and seven more with values of $200 million and higher. The marketing technology sub-sector accounted for 37% of Marketing & Interactive Services deal value, led by’s acquisition of Buddy Media, which helps companies manage across social media platforms, for $745 million. Other

JEGI Client Briefing – July 2012

marketing technology deals making the top 10 in 1H 2012 included the Intuit acquisition of Demandforce, a SaaS application that automates Internet marketing and communications, for $424 million and Oracle’s acquisition of Vitrue for $300 million. Ad and digital agencies combined accounted for $2.2 billion of deal value in 1H 2012, led by WPP’s acquisition of digital agency AKQA from General Atlantic for $540 million. Market research and consulting was next, accounting for 12% of deal value, including the acquisition by Genstar Capital of eResearch Technology, a provider of health outcomes research services, for $377 million. The chart below shows the top 10 Marketing & Interactive Services deals by value in the first half of 2012. The “New Normal” At the SIIA Strategic & Financial Investment Conference on June 21 in NYC, JEGI Co-Presidents, Tolman Geffs and Scott Peters, provided the opening keynote presentation for more than 200 M&A focused strategic executives and private equity investors. This insightful session described the confluence of global uncertainty with the forces of rapid technological change as the “New Normal”, leading to interesting business combinations via M&A activity. Examples include several deals highlighted above, including Experian/Conversen, Oracle/Vitrue and Media, as well as the Amazon acquisition of Kiva Systems, which makes robots used in shipping centers to simplify operations and reduce costs, and the acquisition by Facebook of Instagram, which provides Facebook users with a compelling experience for photo sharing, for $1 billion. Companies, possibly more than ever, are focusing on servicing their customers, and we expect to see more interesting combinations via M&A in the years to come. The complete presentation is available at:

M&A Highlights for 1H 2011 • The b2b online media and technology sector saw a 21% rise in the number of M&A transactions announced in 1H 2012 vs. 1H 2011 and a 160% increase in deal value to $7.9 billion, led by the pending Alibaba Group/Yahoo deal. Other notable Q2 transactions included the IHS acquisition of Globalspec, a b2b lead gen provider connecting industrial marketers with their target audiences in engineering, technical and industrial markets; the acquisition by LinkedIn of SlideShare, a professional content sharing platform, for $119 million; and Norwest Venture Partners’ acquisition of a 49% stake in Manta, a web site for business listings serving the local market, for $44 million. • The b2c online media and technology sector was the second most active in the first half of 2012, with 133 transactions at a total value of $4.2 billion – very similar results to the first half of 2011. The largest deal of the half was the acquisition by Cerberus Capital Management of 53% of AT&T’s Advertising Solutions business, which comprises a combination of print and online yellow page listings, for $950 million in April. Other notable Q2 deals included Axel Springer’s acquisition of Totaljobs, an online recruiting platform, from Reed Elsevier for $176 million; Ybrant Digital’s acquisition of online shopping comparison sites PriceGrabber, Classes USA and LowerMyBills from Experian for $175 million; and the acquisition by Cox Target Media of, an online source for savings, personalized deals and money-savings experts, for $100 million. • M&A activity for the business-to-business media sector continues to be relatively quiet, with only 14 deals in the first half of 2012, for a total value of $82 million. In Q2, Questex Media sold its b2b industrial and specialty

publications to North Coast Media; and Bobit Business Media acquired b2b media assets for the trucking industry from Newport Business Media. • The consumer magazine sector has been uneventful in the first half of 2012, with 27 deals at a total value of $122 million, a sharp contrast to the first half of 2011, which saw several multi-hundred million dollar deals, including the acquisition by Hearst Corporation of Lagardère’s magazine portfolio for $651 million. • The database and information services sector picked up considerably in the first half of 2012, led by the PE buy-out of TransUnion in Q1; and two transactions in Q2 – Veritas Capital’s acquisition of Thomson Reuters’ Healthcare business, a provider of healthcare data and analytics, for $1.25 billion; and Piramal Healthcare’s acquisition of Decision Resources, a provider of healthcare data, research and consulting, from Providence Equity Partners for $635 million. Other notable Q2 deals included the R.R. Donnelley acquisition of Edgar Online, a distributor of financial data and public filings, for $67 million; and Markit’s acquisition of Data Explorers, a provider of global securities lending data. • The education information, technology and training sector saw a similar number of deals and value in the first half of 2012, compared to the first half of 2011. The most notable deal of Q2 was the acquisition by PLATO Learning of Archipelago Learning, a SaaS provider of supplemental education products, for $301 million. Pearson continued to be very acquisitive in the education sector, with two acquisitions in May – GlobalEnglish, which offers on-demand enterprise solutions for advancing Enterprise (continued on page 5)

Media, Information, Marketing Services & Technology M&A Activity 2011

2012 January -June Value ($MM) No. of Deals

Industry Sector

January - June Value ($MM) No. of Deals

% Change No. of Deals


B2B Online Media & Technology







B2C Online Media & Technology







Business-to-Business Media







Consumer Magazines







Database & Information Services







Education Information, Technology & Training







Exhibitions & Conferences Marketing & Interactive Services Mobile Media & Technology Total

JEGI Client Briefing – July 2012


























Digital M&A at the Event Horizon By David Clark, Managing Director, JEGI,

Against the backdrop of a challenged global economy, growth in digital media spending continues uninterrupted. The rate of growth is impressive – 2006-2011 CAGR of 13% and expected CAGR of 15% for 2011-2016. No other sector of the economy has grown, or is expected to grow at this rate, which is 5X the growth rate of US GDP. 53/NLINE!D3PENDING  E BILLIONSANDCHANGE











The forces at work in the sector are powerful and continue to compound. Smart phone penetration of 50+% at home and in the workplace. Approximately 15% YoY growth in ecommerce. Rapid proliferation of tablet, app and emedia platforms. And accelerating growth in brand marketer spending in online video and social media. These mutually reinforcing market drivers call to mind the concept of “event horizon�. In physics, an event horizon is the point at which an object becomes so large – black holes are the best example – that no nearby matter can escape its gravitational field. The size of the digital sector (media + services + infrastructure) has reached this level of scale. And the impact is so far-reaching that companies well outside of the core “ad tech� sector are feeling the pull. To be sure, search marketing and online display advertising, the true work horses of ad tech, have already sailed past the event horizon. Every conceivable publishing, lead gen, response marketing and ecommerce model has been permanently re-shaped by search and online display.

M&A transactions have played a significant role in re-shaping the ad tech landscape. In the past five years alone, JEGI has tracked approximately $83 billion of online media and interactive marketing transactions. And ad tech M&A is not yet done. With well over $1 billion of venture capital invested in the extremely crowded ad network, DSP and real-time bidding category (and with the IPO market likely shut for a while to come), consolidation needs to occur. True differentiation in the DSP category is low, marketing “noise� is high, and the large media agencies have created their own competing trading desks. As a result, some of the largest, best funded independent companies in the ad tech sector will likely pursue M&A as an alternative, if not preferred exit. It will be interesting to see how sizable investments in the DSP/RTB category get realized. Equally interesting to observe are the new “industry� participants from outside the ad tech sector that are getting pulled closer to the digital event horizon. In terms of M&A activity, what we’re seeing is ad tech M&A giving way to “marketing technology� M&A. There is a notable cooling down of M&A in the ad tech categories of search and display services and tools, while M&A activity has heated up in marketing infrastructure, particularly for technology solutions that address the needs of global brand marketers and premium publishers (including ecommerce brands that operate as marketer and publisher alike). In a recent Forbes article, Randall Rothenberg stated that “Marketing for large companies is fundamentally an industrial process. They depend on scale.� No surprise, then, to see companies like IBM looking over the horizon and seeing the large opportunity in enterprise marketing systems, and then rapidly assembling an enterprise marketing “technology stack� via very aggressive M&A. From 2010 to 2012 alone, IBM invested over $3 billion directly pointed at enterprise marketing management. Here’s why. According to a new survey by the CMO Council, 80% of 200 global marketing executives confirmed that “digital marketing� is a strategic agenda item with strong corporate support. Meanwhile, over a third of these executives admitted that their digital models were little more than a collection of poorly integrated, tactical point solutions. Along those lines, IBM’s “State of Marketing 2012� report revealed that more than seven out of 10 respondents to its survey said that they believe integration is important across owned, earned and paid channels, while less than three out of 10 were effectively integrating those different channels.

SIIA Strategic & Financial Investment Conference

Speaking of M&A, while presenting companies varied in terms of size and lifecycle stage, they are each actively seeking a 'next stage' oppor-


d ata data me dia media

JEGI Co-Presidents Tolman Geffs and Scott Peters keynote presentation titled “The End of The World As We Know It: Innovation & Growth in Digital Services� provided an insightful view on the “New Normal�. While there is much uncertainty in the world, there are also exciting waves of innovation, leading to interesting combinations via M&A. The complete presentation is available at:

Presenting Companies 2012 Pr esenting C ompanies

ssaas/software aas/software

The audience comprised executives from a strong mix of global companies and private equity firms, including Aegis Media, American Express, Arvato, Bloomberg, BV Investment Partners, Catalyst Investors, Cengage Learning, Cognizant, DMG Information, Dow Jones, Dun & Bradstreet, Equifax, Frontenac, Gartner, GE Capital, Interpublic Group of Companies, Leeds Equity, LexisNexis, McGraw-Hill, MidOcean Partners, News Corp, Nielsen, Oaktree Capital, Riverside Company, Spire Capital, Summit Partners, Thomson Reuters, Wicks Group, Wolters Kluwer, WPP, and many others.

tunity, which could include an add-on acquisition, a strategic partnership, a round of investment, or an exit. See the chart below for the complete set of presenting companies and be sure to hold June 13, 2013 on your calendar for next year’s conference. â–

m arketing tech nology marketing technology

The 2012 SIIA Strategic & Financial Investment Conference was a big success. More than 20 presenting companies from across digital media, data/information, SaaS/software and marketing technology shared their stories with nearly 250 strategic M&A-focused executives and financial sponsors. This sold out event, which was co-founded by sponsors JEGI and Veronis Suhler Stevenson, was held at the Princeton Club in NYC on June 21.

JEGI Client Briefing – July 2012

IBM and its peers – Oracle, SAP, Teradata, and others – are gearing up to help out with that problem. In essence, the Enterprise Resource Planning (ERP) players have acquired businesses that will help marketers integrate the rich yet disparate data coming from ad tech – digital ad campaigns, online consumer interactions (including social media) and ecommerce transactions – and manage that data within highly evolved Content Management, CRM and Business Intelligence systems. The size of this market will likely rival online ad spending, and it offers a more attractive long-term, recurring revenue model – SaaS subscriptions, software licenses and managed services to the global Fortune 1000.

JEGI's Marketing Technology M&A Heat Map

Enterprise Marketing Mgmt

Business Intelligence

User Interface (UI)/ User Experience (UX)


Customer Experience Management

Customer Relationship Management

Payment and Fulfillment

Customer Support/Media KPO


Lead Gen


Marketing Dbase

Ad Networks

Real-Time Bidding (RTB)

Campaign Management


Audience Targeting








Ad Units


Ad Serving

Ad Ops

Ad Sales

Online Ad Technology

Agency Services

Web Content Management

Tech Services

Digital Marketing Technology

Brand/Premium Publisher

Performance very hot




So, Enterprise Marketing Technology has become a whole new center of gravity in the digital media and marketing domain. And again, we can see an expanded circle of software and service providers getting pulled into the market. You know the definition of marketing (and for that matter, “CPA”) has changed when you see Deloitte, the audit and consulting firm, launch Deloitte Digital (as Deloitte described it, “to provide our clients with a suite of strategy, creative, user experience, engineering and implementation serv“To help our clients harness the promise of digital techices across mobile, nologies, we launched Deloitte Digital to provide our web, social and digital clients with a suite of strategy, creative, user experience, content solutions”; or “where left brain engineering and implementation services across mobile, meets right brain”) to web, social and digital content solutions.” house its recently acquired UX/UI busi- Janet Foutty, National Managing Director, ness, Ubermind, the Deloitte Consulting LLP’s US Technology Practice developers of iTunes. You know the definition of campaign management has changed when Infosys, a leading Indian BPO firm, has partnered with WPP to form BrandEdge, a SaaS digital marketing platform for global brands. And, you know the definition of both CRM and social media are changing when you see Oracle and acquiring (for $300 million and $745 million, respectively) Vitrue and Buddy Media, two leading – though not yet providers of – social media content publishing solutions.

As BusinessInsider reported on these deals, “While both [Oracle and] are huge in their fields, they're known for handling the non-glamorous, nitty-gritty back-end of the marketing mix.” It is a gritty, but sizable market and the current hot spot for sector M&A.

Active M&A Market Continues (cont. from p. 3) Fluency, for $90 million; and Certiport, provider of performance-based certification exams and practice test solutions. Other notable deals in Q2 included the John Wiley acquisition of textbook publisher Harlan Davidson; and the acquisition by Boathouse Capital and Renovus Capital Partners of Atomic Learning, which provides educators with professional development and training resources for introducing technology in the classroom. • The exhibitions and conferences sector saw a sharp increase in number of deals and value in the first half of 2012, compared to the first half of 2011. The 29 transactions announced at a total deal value of $437 million represented 164% and 165% respective increases over 1H 2011 levels. Two event services deals led the parade, with Maritz acquiring Experient, a provider of meeting and event services, from Riverside Partners and Veronis Suhler Stevenson in April (JEGI represented Experient in this deal); and Gen Cap America acquiring Nth Degree, a provider of event management and marketing services, from Frontenac Company in March. In Q2, global event companies continued making acquisitions of exhibitions in emerging markets, such as the Tarsus acquisition of Life Media, an organizer of Istanbul-based trade fairs and ITE’s acquisition of BeautexCo, an organizer of beauty events in the Ukraine. • Mobile media and technology was the third most active sector for M&A in 1H 2012, with 73 announced transactions at a total value of $2.8 billion, representing 66% and 109% increases, respectively, over 1H 2011. Several notable mobile-related transactions took place in Q2, including the Facebook acquisition of Instagram. Facebook completed five additional mobile deals in the quarter, with the acquisitions of, mobile facial recognition software and technology, for $60 million; Karma Science, a mobile gift-giving application, for $80 million; as well as Tagtile, Lightbox and Glancee. Other deals in the quarter included Gree International’s acquisition of Funzio, a mobile game developer, for $210 million; the Intuit acquisition of AisleBuyer, a mobile payment service that allows customers to purchase an item for home delivery by scanning a bar code from inside the store, for $90 million; and Conde Nast’s acquisition of ZipList, which enables users to find recipes online and assemble shopping lists to sync to iPhone and Android phones, for $14 million. ■

Welcome to the next horizon. ■

JEGI Client Briefing – July 2012


PE Investors See Robust M&A Activity Ahead (cont. from p. 1) We have long focused on business services as an attractive area for investment. Meeting the competitive needs of enterprise customers today requires best-in-class, cost-effective solutions, often delivered by businesses specializing in a specific functional process or vertical market, or both. This is especially true in the information, marketing services and technology sectors. The debt markets are strong, but not across all sectors. There is a clear thirst for yield in today’s low interest rate environment. In my view, the rally in the credit markets stems from the search for higher yields, helped by a stabilizing and strengthening economy. Strong debt markets drive the M&A markets and multiples. Size of deals is another real consideration for multiples and optimal capital structures. Bigger companies appeal to more lenders. At the lower end of the market, 2.5x to 3x is still the prevailing leverage range. At the higher end, there are deals above 6x. It all depends on the strength of the credit. Stewart Kohl, Co-CEO Riverside Company

We’re seeing a lot of activity in our deal pipeline, thanks to our global Origination team. A number of factors are driving the uptick in activity, and multiples remain high for top-quality companies after the difficult period of 2009 and 2010. Meanwhile, strategic and financial buyers are eager to put money to work in a low interest rate environment and in advance of a cyclical

“...strategic and financial buyers are eager to put money to work in a low interest rate environment and in advance of a cyclical recovery.” recovery. Some private equity buyers are trying to use funds before the expiration of their investment periods. Many buyers sat on capital for the past few years, and there is a need to invest in quality businesses. Some sellers are motivated to sell before potential tax law changes. And finally, despite macroeconomic uncertainty, some lenders also have strong incentives to lend money, and they’re hungry to get deals done. Jeff Stevenson, Managing Partner Veronis Suhler Stevenson

The increased availability of credit and the expiring investment periods of many private equity funds have been key drivers of the recent increase in middle market M&A activity and


valuation multiples. A continued weakening of the European banking system and threats of exit or insolvency from a variety of Euro countries are the events most likely to impact US middle market investing. VSS is primarily focused on Business and Information Services, SaaS and Education companies with a portion of recurring revenue for new platform investments. We are actively looking for add-ons for a majority of our platform companies.

“The increased availability of credit and the expiring investment periods of many private equity funds have been key drivers of the recent increase in middle market M&A activity.” The current debt market in the US is more active with senior debt multiples as high as 5.5x-6x for businesses with more than $35 million of EBITDA and 4x-4.5x for less than $25 million of EBITDA. We do not expect the Euro crisis to significantly impact the US banking sector and believe leverage multiples will remain at current levels. Clearly, the more aggressive approach by lenders has forced transaction multiples higher and incentivized companies to seek a sale. We aim to keep a conservative capital structure with approximately 2x4x senior leverage, 1x-2x mezzanine and 4050% equity. Dan Kortick, Managing Partner Wicks Group

The economy continues under generally improving conditions. Different sectors and specific niches within those sectors are reacting to this recovery in varying degrees. Many fast growing segments have already achieved and/or exceeded pre-recession benchmarks. Wicks intends to remain an active investor in niche segments where recovery growth rates exceed that of GDP. Tax strategies and planning are also a market force that will drive M&A for the remainder of 2012. With the prospect of changes to capital gains and gift tax exemptions, entrepreneurand family-owned businesses are prudently planning and may take advantage of a liquidity event this year. The debt markets appear to be open, but not aggressively so, for platform companies in our size range ($5-$15 million EBITDA). We are encouraged by seeing more traditional banks reentering this part of the lower middle market, and they are focused on quality transactions. In the lower middle market, senior debt levels are

not typically greater than 50% of the capital structure, and senior leverage multiples are in the 3.5x-4.5x range. Peggy Koenig, Managing Partner & Co-CEO John Hunt, Partner/Head of Sr. Equity Funds ABRY Partners,

We closely monitor macroeconomic issues that could disrupt the US M&A market. Any one of several factors could impact investment activity and the M&A market over the next 1218 months. We continue to be active in buying and selling companies. On the private equity side, we have a number of sale processes underway, while pursuing both new platform companies and follow on acquisitions for existing platforms. On the senior equity side, we continue to enjoy tailwinds in committing new capital to smaller growth-oriented companies in the middle market. We expect this environment to continue, as the lending environment for such firms has not recovered in the way that the larger middle market has. We remain very active investors in sub-sectors benefiting from broadband proliferation. We are buying and selling data center companies, as well as telecom related businesses that are realizing the benefits of these trends. We also are actively investing in information businesses and a myriad of business processing outsourcing companies.

“...we continue to enjoy tailwinds in committing new capital to smaller growth-oriented companies in the middle market.” The debt markets are volatile and have been for quite a while. We opportunistically tap the debt markets for existing portfolio companies. Debt capital is available to us from the lenders with whom we have done business for many years. Interest rates are still low, and we can attract financing on relatively positive terms. The sub-sector we are investing in will dictate the mix of equity, senior and mezzanine debt. Sean White, Partner Spire Capital

There is a significant amount of equity capital seeking good investments. This has created a robust seller slanted environment. Potential tax changes will be impactful as well. We have recently sold two businesses and will probably sell more. I would also anticipate several new investments over this time period as well.

JEGI Client Briefing – July 2012

Our focus is on the information and technology sectors, because we see a better relationship between valuations and growth in these market segments. Said differently, valuations are more compelling in these sectors for us. We are considering both.

“There is a significant amount of equity capital seeking good investments.” The debt markets are currently favorable from a pricing and availability perspective. Valuation multiples are a bit higher due to the current availability of debt financing. We prefer 60/40 debt to equity. Sam Levine, Managing Director Eos Partners

We view the economy with caution and are being conservative regarding capital structure. We will be aggressive, but avoid overleveraging the balance sheets of companies. During this past recession, we bought the debt of six companies overleveraged during good times. We turned debt into equity by purchasing senior debt at huge discounts and driving a restructuring process. Today, those companies are achieving strong growth. Given the current uncertainty, we are making private equity investments with modest leverage and some type of preferred equity that is higher up in the cap structure. Over the past 13 months, we have made seven new platform investments, many with entrepreneurs who are not ready to seek a full exit but still want an equity partner to either provide partial liquidity and/or some growth capital. In cases where our target has limited organic growth prospects, we can make accretive acquisitions of smaller tuck-ins. Both organic growth and acquisition scenarios can generate attractive private equity returns without using full market leverage. We continue to see some interesting opportunities with companies transitioning from print to digital and also in niche data driven trade show/conference driven business models. Having great data is a key foundation to driving growth. Within the B2B media space, we are looking at companies that have depth within one (or a limited number) of verticals. Companies need to focus on deep vs. wide so they can capture the mindshare of their customers. We are also looking at a number of events/trade show businesses with high market share. Trade shows aren’t going away.

JEGI Client Briefing – July 2012

As for marketing/media services, digital media growth has slowed but is still growing at a higher rate than other channels. There is increased commoditization and competition within the digital realm, and many digital agencies have had a hard time scaling, given the labor intensity relative to traditional mass media. We generally don’t put max leverage on the balance sheets of companies we invest in and usually avoid mezzanine debt. Instead, we focus on companies led by entrepreneurs who don’t want to fully lever their companies, fearing that max leverage will prevent them from pursuing an aggressive growth strategy. Mark Colodny, Managing Director Warburg Pincus

We expect deal activity to continue to be strong for a variety of reasons: For corporations: • Corporations can be very conservative buyers when the economy is poor and they are going through cost cutting exercises; but when profits are stronger, as they are now, corporations tend to get more confident as buyers. • They also have a lot of cash on their balance sheets. • In media, many traditional media companies are still furiously working on the migration to digital and need acquisitions to help them cross the Rubicon. That trend will continue for many years.

“...many traditional media companies are still furiously working on the migration to digital and need acquisitions to help them...” For private equity: • Many private equity firms are contemplating fundraising and need to achieve exits to do that. • The debt markets are very strong right now, after a tough second half of 2011. We are routinely seeing debt multiples in the 4x-7+x range, depending on the size and predictability of the company. Meaningful debt is starting to be available for Internetonly companies. The past six months have been very busy for us as both buyers and sellers, and we expect to continue to be active in the near future as well. We are still highly intent on growth and focused on digital media, electronic information, software and tech-enabled services.

Although the valuations for digital media and SaaS software in particular have been stratospheric, we have continued to find interesting minority investments in private companies. Neil Garfinkel, Partner Francisco Partners

The acceleration of media dollars into online (including social) and mobile channels will continue through the foreseeable future. While macro events (Europe and its dampening effect on US) will impact growth, the underlying trends are very positive. We anticipate being very active in M&A over the next 18 months.

“The current debt market is quite robust (3x-7x EBITDA, depending on the quality of the asset) which is helping deals get done.” We constantly review the digital marketing landscape. We are particularly interested in new investment platforms in (i) data-driven digital marketing companies; and (ii) cross channel analytics companies. The current debt market is quite robust (3x-7x EBITDA, depending on the quality of the asset) which is helping deals get done. However, we are more focused on growth than on leverage, and most of our digital marketing deals have very little leverage in the capital structure. Chris Langone, VP, Business Development Symphony Technology Group

Market activity will be shaped by both political and economic trends, such as Europe, the Presidential election, the potential fiscal cliff, a potential double dip and changes to the tax code. I believe our deal-making ability will be hindered by a lessening of debt availability, offset by increasing middle market deal flow from owner-operated companies looking to sell before potential 2013 tax code changes. We are equally active, if not more so, in down markets. For the middle market, I believe the debt markets will see more robust activity for the rest of the year, at the normally lower leverage multiples. We are seeing debt to equity ratios of 60/40 to 50/50 in the deals we are looking at and total leverage of 4x to 5x, with great variability in leverage, depending on the profile of the business. ■


Exceptional Transaction Experience TECHNOLOGY

Journalism Online a SaaS marketing platform (CRM) for real-time, multi-stage, and multi-channel marketing including social media, email, and mobile

the leading SaaS platform for retail transaction optimization solutions has been sold to

has been sold to

a leading European display ad exchange for premium unsold inventory

a leading provider of ecommerce solutions to publishers via

has been sold to

a leading distributor of company data and public filings for equities, mutual funds and a variety of other publicly traded assets has secured $12 million in growth capital

has been sold to


a unit of




a leading provider of integrated event solutions and a portfolio company of

The Riverside Company and

VS&A Comm Partners Fund II has been sold to

a leading global social media agency

a leading provider of social media insights via search, monitoring and measurement has been sold to

has been sold to

a leading interactive marketing agency and CRM solutions provider

has acquired

has been sold to

a unit of

a divison of

a global digital marketing services company

a provider of content, data, advertising, and career services for the oil and gas industry

the leading provider of consumer shopping predictive targeting data has been sold to

INFORMATION a leading B2B lead generation provider for IT vendors has been sold to ®


a portfolio company of

has sold Summers Press and select CCH OSHA compliance and employment guide publications to

a leading provider of banking information and analytics

has been sold to

has been sold to

a divison of

for $39,000,000

MEDIA has sold the assets of FUTURE MUSIC US including

a leading developer of online shopping solutions for local media has been sold to a consortium of eight leading media and publishing companies:

to a portfolio company of

Advance Digital, A.H. Belo Corporation, Cox Media Group, Gannett Co. Inc., Hearst Corporation, MediaNews Group, The McClatchy Co., and The Washington Post

has sold

a division of DMGT plc has sold

the No. 1 media brand in the motorcycle industry to

a leading Australia-based online community for parents has been sold to

a leading producer of trade shows serving the U.S retail markets for gifts, home furnishings, action sports and antiques to for $180,000,000

JEGI’s client is mentioned first in each of the above transactions.

Contact Us to Discuss the Marketplace and Your Company’s M&A Strategy. 150 East 52nd Street, 18th Floor New York, NY 10022 (212) 754-0710

Wilma Jordan Founder & CEO Richard Mead Managing Director

Scott Peters Co-President

David Clark Managing Director

Tom Creaser EVP

Tolman Geffs Co-President

Tom Pecht Managing Director

Adam Gross CMO

Bill Hitzig COO

Amir Akhavan Director

JEGI July 2012 Client Briefing Newsletter  

JEGI July 2012 Client Briefing Newsletter

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