Mobile Advertising and Marketing: 3Q M&A Update

Transcription

1 Advertising and Marketing: 3Q M&A Update Mark R. Langner Managing Director Research (t) (m) Section 1: Review M&A activity in the mobile advertising and marketing space continues to be healthy despite a rough quarter for public comparables in both segments and general volatility in markets in both the U.S. and Europe. Activity in this sector continues to be driven by themes we have identified around the impact that the smartphone is having on user behavior, the convergence of mobile marketing and advertising and traditional online marketing and advertising, and the potential for mobile to blur the lines between traditional marketing, advertising and commerce. We are seeing M&A transactions in the sector at both ends of the spectrum. Tactical acquisitions are being made around market consolidation and expansion such as Valueclick s acquisition of Greystripe. Strategic acquisitions of new technologies or specific mobile-industry expertise and talent are also occurring such as Augme s acquisition of Hipcricket. 3 RD quarter stock performance for both the mobile marketing and the mobile advertising companies was weak albeit for different reasons. With broad economic concerns continuing to overhang the market we believe that valuations will continue to market it a buyer s market through year-end. We expect that M&A activity has reached its nadir in these sectors and look to increased activity driven by both strategic and tactical considerations as we move into In particular, with the IPO market essentially closed, we expect increasing M&A activity around the following themes: - Attractive Valuations Attracting Acquirers for More Established Businesses - On-line Marketing and Advertising Players to Continue to Make Strategic Acquisitions as they Push Into the Sector - Small and Mid-Sized Players to Combine In Order to Gain Market Share Figure 1: Advertising & Marketing Deals $ in millions 3Q Q Q Q Q 2011 Advertising Number of Deals Aggregate Deal Value $54.1 NA $0.5 $99.1 $0.0 Avg. Deal Size $54.1 NA $0.5 $49.6 NA Marketing Number of Deals Aggregate Deal Value $35.1 $17.0 $157.9 $237.4 $106.1 Avg. Deal Size $35.1 $8.5 $52.6 $59.3 $26.5 Number of deals includes deals with undisclosed transaction values Aggregate and average deal sizes based on deals with announced values Figure 2: Public Comp Performance (1/3/ /29/2011) 80.0% 60.0% 40.0% 20.0% 0.0% (20.0%) (40.0%) (60.0%) (80.0%) S&P 500: (6.0%) NASDAQ: (6.5%) MSCI Europe: (16.6%), YTD as of 11/29/2011 Advertising: (44.0%) Marketing: (58.9%) Advertising and Marketing: 3Q

2 EV / LTM Revenue Section 2: Public Markets & Valuation Metrics Public markets were not kind to the mobile advertising and mobile marketing industries during the 3 rd quarter. Our index of mobile marketing companies continued to drift lower during the third quarter much as it has done throughout the year. advertising, which had significantly outperformed the broader markets for the first half of the year, was particularly hard hit in the 3 rd quarter down from its highs in July to finish lower by over 50% for the quarter mostly on broader fears for advertising and marketing budgets. Even a strong bounce-back in the early 4 th quarter has left that index trailing the broader markets. Valuations, not surprisingly, are near historic lows for these industries, creating buying opportunities for potential acquirers. Size continues to be a big influencer in valuation with larger players commanding a higher premium than smaller companies. Figure 3: Advertising & Marketing Price Performance 20.0% YTD 3Q Q 2011 (to date) 10.0% 10.6% 8.7% 7.7% 4.2% 0.0% (10.0%) (6.0%) (6.5%) (20.0%) (16.6%) (15.5%) (14.2%) (17.9%) (23.5%) (30.0%) (32.3%) (40.0%) (50.0%) (60.0%) (44.0%) (54.3%) (58.9%) (70.0%) Advertising Marketing MSCI Europe S&P 500 NASDAQ, YTD as of 11/29/2011 Figure 4: 3.5x Enterprise Value / LTM Revenue Advertising Marketing 3.0x 3.1x 2.5x 2.5x 2.0x 2.2x 2.0x 1.5x 1.7x 1.4x 1.0x 1.1x 1.1x 0.5x 0.6x 0.4x 0.5x 0.3x 0.3x 0.0x $5 $10 $20 $40 $80 $160 $320 Enterprise Value as of 11/29/2011 Companies excluded due to outlying valuations: Adventis Group, Augme Technologies, Blue Calypso, Cephas, CommerceTel, MMax Media, Tornado Group, NeoMedia Technologies, Portlogic Systems Advertising and Marketing: 3Q

3 Section 3: Marketing During the 3 rd Quarter there were 10 announced deals in the mobile marketing segment. This was the most in any quarter over the last 15 months. Valuations reflect a healthy premium for acquired companies over the x EV/LTM value of mobile marketing public comps. Average deal size at $7.6mm is reflective smaller size of mobile marketing companies relative to the larger mobile advertising players. Key deals include Velti s acquisition of Interactive Group, the U.K. s largest mobile marketing company, giving Velti an international expansion footprint for its marketing SAAS platform business. In a similar transaction, Augme Technologies expanded upon its marketing services business through its purchase of Hipcricket for its marketing platform technology. Velti s other notable transaction was its acquisition of Air2Web, a transaction which provided Velti with a consolidation play in the U.S. into the financial vertical and access to the Indian market. Figure 5: Selected Marketing M&A Transactions Announced Date Target Acquirer(s) Enterprise Value ($MM) EV / LTM Revenue Description Rationale / Description 11/14/2011 Interactive Group Limited Velti Plc (NasdaqGS:VELT) $ x Interactive Group Limited provides multimedia mobile interactive solutions in the United Kingdom and Ireland. 11/6/2011 iloop, Inc. (1) Lenco Inc. (OTCPK:LNCM) iloop, Inc. provides mobile services and technology for interactive mobile marketing, advertising, and content distribution. 9/22/2011 Air2Web, Inc. Velti Plc (NasdaqGS:VELT) Air2Web, Inc. provides mobile marketing solutions to connect consumers with brands via mobile devices to promote products and brands. 8/3/2011 HipCricket, Inc. 6/6/2011 SmartReply, Inc. Augme Technologies, Inc. (OTCBB:AUGT) SoundBite Communications, Inc. (NasdaqGM:SDBT) x Headwaters MB acted as financial advisor to iloop upon its announced merger with Lenco. HipCricket, Inc. operates as a mobile marketing and advertising company that empowers brands, agencies, and media properties to engage customers, drive loyalty, and increase sales in the United States. SmartReply, Inc. provides voice and mobile messaging solutions to retailers and retail brands in the United States and Canada. Advertising and Marketing: 3Q

4 Section 4: Advertising advertising saw a small amount of deal activity in the 3 rd Quarter - with only two deals. Both of these were smaller deals around agencies specializing in mobile advertising. This is not surprising given the state of mobile advertising. Much of the early activity around the combination of Internet advertising networks and exchanges with mobile specialists e.g., Google/Admob has already occurred. There only a few plays left in that segment of notable size. The next wave of mobile advertising companies, the interesting technologies around demand and sell-side tools, yield management, etc., are still very early stage. We expect activity around these types of companies to ramp up as those businesses show traction and grow in Figure 6: Selected Advertising M&A Transactions Announced Date Target Acquirer(s) Enterprise Value ($MM) EV / LTM Revenue Rationale Description / Description 4/21/2011 Greystripe, Inc. ValueClick Media, Inc. $70.0-9/30/2010 Mobclix, INC. Velti USA, Inc. $ Greystripe, Inc. operates an ad-supported mobile games and applications distribution platform. Mobclix, INC. operates a mobile advertising exchange network through its open marketplace platform and account management solution for iphone application developers, advertisers, advertising networks, and agencies in California. Advertising and Marketing: 3Q

5 Section 5: VC and Private Investment VC and private-equity activity in the mobile advertising and mobile marketing sector continued to be strong in the 3 rd quarter. We attribute much of this strength to the ongoing shift toward new ideas around smartphones that continues to attract early stage interest from VCs. Additionally we have seen some significant later stage investments, particularly in mobile advertising businesses as they continue to scale and in response to the IPO window closing with the late summer swoon in public markets. advertising firm Mojiva pulled in $25MM from Shamrock, Pelion Venture Partners and Bertelsmann Digital Media Investments. In October, a couple other large notable MA investments were made in YuMe ($18MM: Samsunh8g Venture Investment, Translink Capital), 4INFO ($14MM: Draper Fisher, Gannet, USVP, Vulcan, Mitsui and Mezzanine Capital Partners), and Brightroll a primarily video play that includes mobile video advertising ($30MM: Adams Street Partners, Trident Capital, Scale Venture Partners, True Ventures, and Comerica Bank). Figure 7: Advertising & Marketing Investments $ in millions 3Q Q Q Q Q 2011 Advertising Number of Deals Aggregate Deal Value $40.8 NA $73.0 $38.4 $45.6 Avg. Deal Size $10.2 NA $14.6 $5.5 $7.6 Marketing Number of Deals Aggregate Deal Value $7.3 $135.7 $87.9 $37.5 $78.9 Avg. Deal Size $1.5 $8.0 $4.0 $2.9 $4.4 Number of deals includes deals with undisclosed transaction values Aggregate and average deal sizes based on deals with announced values Figure 8: Selected Advertising and Marketing Investments Announced Date Target Investor(s) Round 11/10/2011 BrightRoll, Inc. 10/27/2011 4INFO, Inc. 8/16/2011 Zoove Corp. 7/31/2011 Brandtone Limited 7/1/2011 Mojiva, Inc. Adams Street Partners, LLC; Trident Capital, Inc.; Scale Venture Partners; Comerica Bank; True Ventures Draper Fisher Jurvetson; Gannett Co., Inc. (NYSE:GCI); U.S. Venture Partners; Vulcan Capital; Mitsui & Co. Global Investment Ltd.; Mezzanine Capital Partners Highland Capital Partners; WorldView Technology Partners, Inc.; Cardinal Venture Capital; Panorama Capital Unilever Ventures Ltd.; Verlinvest S.A.; Enterprise Ireland; Vision Private Equity Shamrock Capital Advisors, LLC; Pelion Venture Partners; Bertelsmann Digital Media Investments Capital Raised ($MM) Current Description Round Total (1) Sector Rationale / Description D $30.0 $ C BrightRoll, Inc. operates a video advertising network Advertising in the United States. 4INFO, Inc., a text message advertising network, provides SMS publishing and advertising services to Advertising mobile phones users in the United States. Marketing Marketing Zoove Corp. provides a mobile direct response marketing service. Brandtone Limited provides mobile communications and marketing services through its voice-based mobile platform. Mojiva, Inc. provides mobile advertising solutions. Advertising 4/7/2011 GoldSpot Media Inc. 3/18/2011 Jumptap, Inc. 2/14/2011 1/13/2011 Augme Technologies, Inc. Mobiquity Networks, Inc. Berg and Berg Enterprises, LLC; EXA Ventures B Summerhill Venture Partners; Redpoint Ventures; Valhalla Partners; General Catalyst Partners; AllianceBernstein Holding L.P. (NYSE:AB); WPP Digital (Undisclosed) (Undisclosed) GoldSpot Media Inc. provides interactive rich media Advertising and video advertising solutions. Jumptap, Inc. provides mobile search and mobile advertising solutions for the Apple tablet in North Advertising America and Europe. Marketing Marketing Augme Technologies, Inc. provides strategic services and mobile marketing technology to consumer and healthcare brands. Mobiquity Networks, Inc. provides location-based mobile marketing solutions in the United States. 1/5/2011 Millennial Media Inc. Bessemer Venture Partners; Charles River Ventures; Columbia Capital LLC; New Enterprise Associates Millennial Media Inc. provides mobile advertising Advertising solutions. 1. Total raised at time of current round Advertising and Marketing: 3Q

6 Section V: Market Statistics Figure 9: Advertising & Marketing Trading Metrics Trading Metrics ($ in millions, except per share data) Stock Price 52-Week Price Range Market Enterprise EV / Revenue EV / EBITDA Price / EPS Company Ticker 11/29/11 Low High Cap. Value LTM CY 2011E CY 2012E LTM CY 2011E CY 2012E LTM CY 2011E CY 2012E Advertising Companies Velti Plc Nasdaq:VELT $7.22 $6.11 $20.00 $445.3 $ x 1.7x 1.1x 34.4x 6.0x 3.8x NM 21.1x 11.0x Blue Calypso OTCBB:BCYP NM NM NM NM NA NA NM NM NM 1000mercis ENXTPA:ALMIL x NA NA 6.4x NA NA 14.6x NA NA Lenco OTCPK:LNCM x NM NM NM NA NA NM NM NM Call Genie TSX:GNE x NM NM NM NA NA NM NM NM Come&Stay ENXTPA:ALCSY $2.40 $1.61 $3.73 $9.8 $ x NA NA 27.7x NA NA 21.9x NA NA High 3.1x 1.7x 1.1x 34.4x 6.0x 3.8x 21.9x 21.1x 11.0x Mean 2.1x 1.7x 1.1x 22.9x 6.0x 3.8x 18.2x 21.1x 11.0x Median 2.2x 1.7x 1.1x 27.7x 6.0x 3.8x 18.2x 21.1x 11.0x Low 0.6x 1.7x 1.1x 6.4x 6.0x 3.8x 14.6x 21.1x 11.0x Marketing Companies Marchex Nasdaq:MCHX $6.54 $5.71 $10.87 $225.1 $ x 1.3x 1.1x 33.2x 8.2x 6.7x NM NM NM Augme Technologies OTCBB:AUGT x 17.2x 4.0x NM NA NA NM NM NM Goldbach Group SWX:GBMN x NA NA 2.9x NA NA 6.3x NA NA InternetQ AIM:INTQ x NA NA 9.0x NA NA 18.2x NA NA Motricity Nasdaq:MOTR x 0.5x 0.5x 34.7x NA 19.5x NM NM NM NeoMedia Technologies OTCBB:NEOM x NM NM NM NA NA 1.3x NM NM 2 ergo Group AIM:RGO x NA NA 10.6x NA NA NM NA NA CommerceTel OTCBB:MFON x NM NM NM NA NA NM NM NM Tornado Group AIM:MBT x NA NA NM NA NA NM NA NA Portlogic Systems OTCBB:PGSY NM NM NM NM NA NA NM NM NM Streamwide ENXTPA:ALSTW x NA NA 6.5x NA NA 14.4x NA NA Tangent Communications AIM:TNG x NA NA 3.3x NA NA 10.5x NA NA Zamano AIM:ZMNO x NA NA NM NA NA NM NA NA Adventis Group AIM:ATG x NA NA 50.7x NA NA NM NA NA MMax Media OTCBB:MMAX NM NM NM NM NA NA NM NM NM Cephas Holding OTCPK:CEHC $0.00 $0.00 $0.02 $0.8 $2.6 NM NM NM NM NA NA NM NM NM High 31.3x 17.2x 4.0x 50.7x 8.2x 19.5x 18.2x 0.0x 0.0x Mean 7.2x 6.3x 1.8x 18.9x 8.2x 13.1x 10.2x NM NM Median 1.1x 1.3x 1.1x 9.8x 8.2x 13.1x 10.5x NM NM Low 0.1x 0.5x 0.5x 2.9x 8.2x 6.7x 1.3x 0.0x 0.0x Advertising and Marketing: 3Q

7 Section V: Market Statistics Figure 10: Advertising & Marketing Operating Metrics Operating Metrics ($ in millions, except per share data) LTM Revenue Growth LTM Revenue EBITDA EPS Company Ticker As Of 1 Year 2 Year GM LTM CY 2011E CY 2012E LTM CY 2011E CY 2012E LTM CY 2011E CY 2012E Advertising Companies Velti Plc NasdaqGS:VELT Sep % 53% 57% $159.6 $183.6 $281.7 $9.2 $52.9 $83.4 ($0.19) $0.34 $0.66 Blue Calypso OTCBB:BCYP Sep 2011 NA NA NA NM NA NA (1.1) NA NA (0.01) NA NA 1000mercis ENXTPA:ALMIL Jun 2011 NA NA 41% 52.5 NA NA 20.2 NA NA 3.59 NA NA Lenco OTCPK:LNCM Sep 2011 NA NA 67% 11.2 NA NA (7.5) NA NA (0.10) NA NA Call Genie TSX:GNE Sep 2011 NA NA NM 6.0 NA NA (0.6) NA NA (0.03) NA NA Come&Stay ENXTPA:ALCSY Jun 2011 NA NA 25% $17.5 NA NA $0.4 NA NA $0.11 NA NA Marketing Companies Marchex NasdaqGS:MCHX Sep % 16% 43% $135.7 $148.2 $172.4 $5.7 $23.1 $28.3 ($0.06) $0.05 $0.02 Augme Technologies OTCBB:AUGT Aug % 336% 64% (17.4) NA NA (0.14) (0.32) (0.15) Goldbach Group SWX:GBMN Jun 2011 NA NA 24% NA NA 43.5 NA NA 3.91 NA NA InternetQ AIM:INTQ Jun 2011 NA NA 47% 55.9 NA NA 6.9 NA NA 0.11 NA NA Motricity NasdaqGS:MOTR Sep 2011 (4%) 1% 65% NA 3.1 (0.21) (0.32) (0.24) NeoMedia Technologies OTCBB:NEOM Sep 2011 NA NA 48% 2.0 NA NA (5.0) NA NA 0.01 NA NA 2 ergo Group AIM:RGO Feb 2011 NA NA 52% 36.1 NA NA 3.8 NA NA NM NA NA CommerceTel OTCBB:MFON Sep 2011 NA NA 63% 1.8 NA NA (1.8) NA NA (0.07) NA NA Tornado Group AIM:MBT Jun 2011 NA NA 76% 2.7 NA NA (1.3) NA NA (0.01) NA NA Portlogic Systems OTCBB:PGSY Aug 2011 NA NA NA NM NA NA (0.1) NA NA NM NA NA Streamwide ENXTPA:ALSTW Jun 2011 NA NA 39% 15.2 NA NA 3.9 NA NA 0.76 NA NA Tangent Communications AIM:TNG Aug 2011 NA NA 49% 35.2 NA NA 3.5 NA NA 0.01 NA NA Zamano AIM:ZMNO Jun 2011 NA NA 27% 19.3 NA NA (0.9) NA NA (0.01) NA NA Adventis Group AIM:ATG Jun 2011 NA NA 33% 46.3 NA NA 0.1 NA NA NM NA NA MMax Media OTCBB:MMAX Sep 2011 NA NA NA NM NA NA (1.2) NA NA (0.02) NA NA Cephas Holding OTCPK:CEHC Sep 2011 NA NA NM NM NA NA ($0.2) NA NA NM NA NA 1. 1 year revenue growth: 2010A vs. 2011E; 2 year revenue growth: 2011E vs. 2012E Advertising and Marketing: 3Q

8 About Headwaters MB Headwaters MB is an independently owned, growth investment bank and advisory firm. Headwaters MB has transacted over $15 billion of middle market deals and has over $75 billion of deal experience from its 65 full-time senior professionals. Headwaters has a national office footprint in the United States, headquartered in Denver, with additional offices in Boston, Chicago, New York, San Francisco & Washington D.C. Headwaters MB has an significant international track record; providing our clients with a global reach. Our team has generated significant revenue from cross-border transactions, has local advisory partners in 30 countries and the firm has been the winner of Cross Border Deal of the Year. The firm has an established reputation as quality service provider and trusted long-term advisor to clients with a history of process and transaction excellence. The Headwaters TMT Team Gary Moon Sun Jen Yung Mark R. Langner Head of TMT Banking Managing Director Internet Managing Director Research gmoon@headwatersmb.com sjyung@headwatersb.com mlangner@headwatersmb.com FINRA Disclosures Per FINRA regulations, Headwaters MB, LLC has developed a Business Continuity Plan on how we will respond to events that significantly disrupt our business. Since the timing and impact of disasters and disruptions ARE unpredictable, we will have to be flexible in responding to actual events as they occur. With that in mind, we are providing you with this information on our business continuity plan. Our business continuity plan addresses the following: data back-up and recovery; all mission critical systems; financial and operational assessments; alternative communications with customers, employees, and regulators; alternate physical location of employees; critical supplier, contractor, and bank impact; and regulatory reporting. If after a significant business disruption you cannot contact us as you usually do at (303) , you should go to our website at Significant business disruptions can vary in their scope, such as only our firm, a single building housing our firm, the business district where our firm is located, the city where we are located, or the whole region. Within each of these areas, the severity of the disruption can also vary from minimal to severe. In a disruption to only our firm or a building housing our firm, we will transfer our operations to a local site when needed and expect to recover and resume business within one business day. In a disruption affecting our business district, city, or region, we will transfer our operations to a site outside of the affected area, and recover and resume business within five business days. In either situation, we plan to continue in business, and notify you through our website ( regarding how to contact us. If you have questions about our business continuity planning, you can contact us at (303) Advertising and Marketing: 3Q

9 Selected Advertising & Marketing and Recent Transactions Certain transactions executed by Headwaters MB bankers at prior firms Lenco s merger with iloop announced November 2011 AT&T s acquisition of Superclick announced September 2011 Advertising and Marketing: 3Q