Category: online advertising

Could ad slump lead to ValueClick exit?

-Contact Thomas Rasmussen

Recently, we’ve covered the hardships of online advertising companies. However, for a clear example of just how tough the environment really is, we point to the weakness at ValueClick, one of the few remaining publicly traded pure-play advertising firms. Amid an advertising slump and tough competition, the vendor has seen its first-quarter revenue decline 20% from the same quarter last year and its own projections point to a similar decline for the current quarter. With the advertising market seemingly trapped in the doldrums for the foreseeable future, we wonder if an opportunistic acquirer might consider a run at ValueClick.

ValueClick trades at an enterprise value of about $800m. This is about half its 2008 high, and down about two-thirds from 2007, when Google and Microsoft were throwing billions of dollars around to secure market leadership. With $592m in trailing 12-month (TTM) revenue, the company trades at a scant 1.3x sales. This is a far cry from the multiples paid for aQuantive and DoubleClick of 10x TTM sales and 12x TTM sales, respectively.

With $100m in cash and no debt, ValueClick CEO Tom Vadnais has indicated that the company is interested in doing some shopping of its own. However, given the dire state of the economy, we think a takeout is a much more plausible outcome over the next year or so. The potential acquirers include the usual suspects such as Microsoft, Google and IAC/InterActiveCorp; soon-to-be-independent AOL; and large media companies. However, we would hasten to note that most of these vendors have full traditional advertising portfolios, so an acquisition of ValueClick would merely be for boosting market share.

Reality check for mobile ad networks?

-Contact Thomas Rasmussen

Mobile advertising startup Ad Infuse received an infusion of reality last week. The vendor, which has raised $18m in venture backing, had to put itself up for sale after it was unable to secure follow-on funding this year. After being shopped around since last summer, Ad Infuse sold for scraps to UK-based mobile advertiser Velti. We estimate that Velti paid less than $1m for Ad Infuse, which we understand generated just $1.3m in revenue in 2008.

The distressed sale of Ad Infuse comes on the heels of SmartReply’s tiny all-equity purchase of mSnap, as well as several deals involving other niche advertising networks this year. Where does this leave the remaining mobile ad networks that we were bullish on last year as the logical next step of growth for online ad startups?

We suspect there is more VC portfolio cleanout coming, since there are still too many mobile ad startups. That’s not to say there aren’t a few firms that haven’t had some success. For instance, three-year-old mobile ad network AdMob, which has successfully ridden the coattails of Apple’s iPhone AppStore’s rise by providing a way for iPhone developers to monetize their users through ads, is currently at an estimated $30m run-rate. (AdMob has raised nearly $50m to date from Sequoia Capital, Accel Partners, Draper Fisher Jurvetson and Northgate Capital.) And on a smaller scale, AdMarvel is just getting started with what we can best describe as a mobile version of the popular video ad startup Adap.tv. It has raised just $8m to date and is in the process of closing a $10m follow-on round, something its competitor Ad Infuse was unable to accomplish.

Much like what we anticipate will eventually happen in the online video ad space, there will soon come a time when ad giants such as Google and Yahoo will have to buy their way into the mobile sector. In a rare sign of foresight, AOL is the only media behemoth with a sizable presence in the mobile ad vertical following its $105m acquisition of Third Screen Media in 2007.

Shopping sites

Brenon Daly

Contact: Brenon Daly

Fittingly for a laptop that’s marketed on its thin and sleek looks, Dell’s Adamo appears to be getting a thinner and sleeker Web location. The computer maker currently has all of the information on Adamo (think MacBook Air) loaded onto the somewhat clunky address of adamobydell.com. That is in the process of changing as Dell has reportedly purchased the adamo.com site from a cyber-squatter.

While there hasn’t been any official word from Dell, visitors to adamo.com are automatically loaded onto the adamobydell.com site. Dell reportedly purchased the URL from YummyNames, a division of Canadian publicly traded company Tucows. (For the record, Dell’s market capitalization of $19bn is some 730 times larger than Tucows’, which stands at just $26m on the Amex.)

Whatever the details of the deal, we highly doubt that Dell’s reported purchase Monday of the Web address adamo.com will have anything in common with the last URL pickup we highlighted. Back in November, we noted that National Lampoon snared BarackObamaJokes.com for a few thousand dollars. Just a month later, National Lampoon was rocked by charges from the US Securities and Exchange Commission alleging conspiracy and securities fraud. Former CEO Dan Laikin has been arrested and is waiting to stand trial.

Not ad(d)ing up

-Email Thomas Rasmussen

Contrary to our pronouncement last year, the online advertising industry is in a tough spot at the moment. Venture funding for these companies has been shut off as the slumping demand for Web-based advertising has hit the sector harder than it anticipated. (At least it’s not as bad as the regular advertising market. As one VC quipped recently, “While the online ad market has caught a cold, the offline ad market has caught pneumonia.”) Still, the decline in the space has created numerous opportunities for buyers looking to pick up scraps.

One such company having a field day in the current environment is Adknowledge. Just this week, the company picked up the advertising business of struggling MIVA for the bargain price of $11.6m. The division has estimated trailing 12-month revenue of about $75m, down sharply from $100m a year ago. The acquisition came after Adknowledge tucked in two small social networking ad networks for less than $2m, much less than the more than $4m the two raised in venture capital. Furthermore, Adknowledge, which has raised an estimated $45m, tells us that it is still shopping.

Of course, it’s not all gloom and doom for the online ad market. One area where there’s actual growth – and at least the promise of rising valuations – is in online video advertising. VCs have put hundreds of millions of dollars into this sector. Their bet: More Web surfers will increasingly look to online videos for information and entertainment. Granted, it’s still a small space. (Consider the fact that YouTube probably contributed only a few hundred million dollars of revenue to Google’s total revenue of $21.8bn in 2008.) Still, the promise is there. Also encouraging VCs in this market is that the online ad giants (Google, Microsoft, AOL and so on) may well need to go shopping to get video ad technology. We recently published a more-thorough report on that, matching potential buyers and sellers.

Xing the Atlantic

-Contact Thomas Rasmussen

In 2008, online social networking was the buzzword of choice. But as is the case with most tech bubbles, it imploded nearly as quickly as it ballooned. The year that started with a bang (Bebo’s record $850m sale to AOL in March and Plaxo’s sale to Comcast for an estimated $150m in May) ended with a whimper. Several smaller social-networking companies sold in fire sales, resulting in severe VC write-downs. And we expect this to carry on well into 2009.

Consider the case of business-focused Xing, which finished last year with a $4.1m tuck-in of New York City-based socialmedian. When we checked in with Xing before the holiday break, M&A and attractive valuations were the dominant themes. We fully expect the company to follow up on this with more acquisitions in 2009, particularly as social-networking competition goes global. Based in Germany, Xing has used M&A to expand geographically. In addition to its US deal last month, in 2007 Xing picked up Spanish competitors eConozco and Neurona. Furthermore, we understand that Xing was one of the active bidders for Plaxo, which would have represented a significant drive into the US market. On the flip side, US social-networking giants Facebook and LinkedIn are actively trying to expand across the Atlantic.

For Xing, there are literally dozens of US business-focused vertical social networks that would fit in with its expansion strategy. And the company has the resources to do deals. (It’s the only significant publicly traded social-networking company, plus it holds $61m in cash, no debt and is cash-flow positive on roughly $50m in trailing 12-month revenue.) Companies that we think might make a good match for Xing include Fast Pitch, APSense, Zerodegrees, and, dare we say, even Twitter.

Social networking M&A fizzles

Period Total deals Total deal value
January-June 2008 29 $1.28bn
July-December 2008 28 $15m

Source: The 451 M&A KnowledgeBase

Dealing with a legacy

Brenon Daly

Justly or not, acquisitions go a long way toward shaping a CEO’s legacy. (If you don’t believe us, just ask Jerry Levin, who sold Time Inc for what turned out to be a pile of wampum, in the form of overinflated AOL equity.) With Monday’s announcements that two major tech CEOs are on their way out, we pause to look at how deals – or lack of deals – will shape their respective legacies.

Let’s start with Symantec’s John Thompson, who will leave the storage and security giant by the end of its current fiscal year next April. Under his nearly decade-long leadership, Symantec shares rose some 500%, compared to a flat performance over the same period in shares of rival McAfee and a 40% decline in the Nasdaq. However, the one blemish on his record is Symantec’s largest-ever deal, its $13.5bn purchase of Veritas. (Thompson guided Symantec through more than 40 other acquisitions during his tenure.) Symantec shares peaked at about the time the company announced the deal, and have given back most of the gains they had piled up since mid-2003.

And then there’s Yahoo’s once-and-future king, Jerry Yang. We’re guessing history will be less kind to the man who turned down Microsoft’s offer of at least $31 for each share of Yahoo. Shares of the foundering search giant briefly dipped into the single digits earlier this month. However, they jumped almost 10% on Tuesday as Wall Street applauded the imminent departure of Yang, who has overseen the incineration of some $20bn of shareholder value since he reassumed the top spot at Yahoo in June 2007.

Aside from the ‘relief rally’ for Yang’s move, Yahoo shares also got a boost from speculation that the turnover in the corner office makes a deal with Microsoft more likely. We have our doubts about that. Instead, we’d focus on what the CEO change at Symantec means for deal activity. Our bet: Incoming CEO Enrique Salem will unwind several large chunks of the Veritas business, perhaps starting with NetBackup. As recently as last summer, Thompson said ‘nothing’ from the under-performing Veritas portfolio was for sale. Salem will set the company’s line on that in the future, and we wouldn’t be surprised to see NetBackup or other storage assets find their way onto the block.

Barack Obama meets Bluto and Otter

Brenon Daly2 Comments

Just after Barack Obama was elected to the White House, a website devoted to him got moved into Animal House. A few months ago, National Lampoon took a small flier into politics, buying BarackObamaJokes.com. On Wednesday, the day after America elected Obama to the nation’s highest post, the aspiring comedy conglomerate revealed that it had closed the deal. (Although terms weren’t disclosed, we guess the transaction cost National Lampoon less than $10,000.)

National Lampoon’s purchase of BarackObamaJokes.com continues its transformation from essentially a licensing business to a company with actual operations. It has done that largely through acquisitions, picking up a half-dozen Web humor sites so far this year. That flurry of dealmaking has pushed the ‘new media’ portion of National Lampoon’s overall revenue to 20%. The company plans to at least double that level within three years. (Incidentally, National Lampoon, perhaps best known for the film Animal House, is a publicly traded company. No joke. It currently sports a market capitalization of just $8m, but only trades some 9,000 shares in a typical day on the Amex.)

In the interest of a ‘fair and balanced’ account of our White House election M&A report, we also tracked down the guy who owns JohnMcCainJokes.com. The first thing he told us is that he also has a hand in HillaryClintonJokes.com and was going to register BarackObamaJokes.com, but ‘spaced’ on it. As for JohnMcCainJokes.com, which is little more than a placeholder, the owner says he hasn’t received any M&A overtures for the site.

National Lampoon’s 2008 acquisitions

Date Target
November 5 BarackObamaJokes.com
September 4 ZingFu Enterprises
August 19 AllModelZone.com
February 11 Comedy Express (assets)
February 4 Rivalfish
January 9 College Hangover

Source: The 451 M&A KnowledgeBase

Google and Yahoo break up

-by Thomas Rasmussen

The Department of Justice announced this morning that it would file suit to block the planned advertising pact between Google and Yahoo. Google followed quickly by axing the deal. YHOO is up 8% in mid-day trading while the overall market is down sharply. The Google/Yahoo breakup has sparked renewed hope among shareholders that Microsoft could return to the table. It also opens up the possibility of a long rumored partnership between Time Warner’s AOL and Yahoo.

Ad networks: What recession?

3 Comments

-by Thomas Rasmussen

Akamai just got serious about online ads. It acquired ad network acerno from i-Behavior last week for $95m in cash. (See my colleague Jim Davis’ report for more on this acquisition.) This marks not just a somewhat drastic change in focus for Akamai, but is also an encouraging sign for the remaining online advertising networks. Despite the current economic meltdown, and more specifically the declining revenue and abysmal forecasts from ad giants Yahoo and Google, everybody seems to want a slice of the multibillion-dollar online advertising market.

Including the Akamai transaction, a total of 23 online advertising deals have been inked this year. That is up more than 25% from 17 deals for all of 2007, and just four in 2006. This increase in M&A activity stands in stark contrast to the overall Internet M&A picture, where the number of deals has declined more than 10%.

Moreover, despite highly publicized warnings from VCs about the decline in available venture capital and possible exits, funding has been flowing freely and rapidly to online advertising startups. Some of the many to receive funding recently include mobile ad firm AdMob, which raised $15.7m last week for a total of $35m raised to date; Turn Inc., which raised $15m recently for a total of $37m; ContextWeb, which raised $26m in July for a total of more than $50m raised; social networking ad network Lotame, which raised $13m in August in a series B round for a total of $23m raised; and Adconion Media Group, which closed a staggering $80m in a series C round in February, bringing its total funding to more than $100m.

With IPO markets closed, these startups should all be considered M&A targets. Adconion in particular stands out because of its international reach and large base of 250 million users, 50 million of whom are in the US. It would be a nice fit for one of the large media conglomerates competing for online advertising dominance. And they have shown that they are not afraid of opening the vault to do so. VC and banker sources say funding is likely to continue for the near term since there is still a lot of buyer interest. It is unlikely to suffer the same fate as the social networking funding fad, because some online advertising companies actually make money. As this segment continues to consolidate over the next year, we suspect deal flow will likely eclipse that of the past 12 months. Mobile and video advertising ventures are likely to lead the next generation of online advertising-focused startups.

Select recent online advertising deals

Announced Acquirer Target Deal value Deal closed
October 15, 2008 Technorati AdEngage Not disclosed October 15, 2008
June 18, 2008 Microsoft Navic Networks $250m (reported) Not disclosed
April 29, 2008 Cox Enterprises Adify $300m May 2008
March 11, 2008 Qualcomm Xiam Technologies $32m March 11, 2008
February 5, 2008 AOL Perfiliate Technologies $125m February 5, 2008
November 7, 2007 AOL Quigo Technologies $346m December 20, 2007
September 4, 2007 Yahoo BlueLithium $300m October 15, 2007
May 18, 2007 Microsoft aQuantive $6.37bn August 13, 2007
May 15, 2007 AOL Third Screen Media $105m May 15, 2007
April 13, 2007 Google DoubleClick $3.1bn March 11, 2008
April 30, 2007 Yahoo Right Media $680m July 12, 2007

Source: The 451 M&A KnowledgeBase

Banking deals

With the current credit crisis rocking the big banks, online consumer banking portal Bankrate has sidestepped most of the damage and even plans to do a bit of shopping. In the last month alone, it acquired banking blog Bankaholic and consumer credit resource portal Creditcardguide.com for $12.4m and $34m, respectively. That brought its total shopping tab over the past year to $150m on six acquisitions. (We would note that most of the companies that Bankrate picked up were existing partners.) The company recently told us that it will continue its acquisition spree, and it has the means to do so. Bankrate will have an estimated $35m in cash after its latest acquisitions, and has generated some $25m in cash flow over the past year. So who might the portal bank next?

Bankrate is decidedly a so-called ‘Web 1.0′ company. It lacks the customization and social networking features that many of its newer Web 2.0 competitors tout. This lack of new technology, along with a softening online advertising market, could land the portal in trouble. Bankrate could help shore itself up against those technology shortcomings by focusing its acquisition efforts on personal finance startups like Rudder and Mint.com. However, we don’t think it will do that. Instead, we expect Bankrate to focus strictly on the space that it knows, expanding partly by targeting its legacy competitors.

Given this, we think a likely target might be Creditcards.com, which is both a rival and a partner. Creditcards.com, majority owned by Austin Ventures since 2006, tapped Credit Suisse and Citigroup to bring it public in December, but the economic environment forced it to delay its offering in May. The company is profitable, with $60m in sales, but is laden with debt. Besides having very similar businesses, the two companies are hardly strangers. In fact, current Creditcards.com CEO Elisabeth DeMarse was the CEO of Bankrate prior to becoming Austin Ventures’ CEO-in-residence.

Given Creditcards.com’s likely valuation of several hundred million dollars, however, it is unlikely that Bankrate could afford the acquisition. (Bankrate currently sports a market capitalization of about $700m.) Instead, we suspect that Bankrate will continue to ink tuck-in acquisitions. We wouldn’t be surprised if smaller competitors like Credit.com or Credit-Land.com caught its eye.

Recent Bankrate acquisitions

Date Target Deal Value
September 23, 2008 Bankaholic $12.4m
September 11, 2008 LinkSpectrum (dba CreditCardGuide.com) $34m
February 5, 2008 InsureMe $65m
February 5, 2008 Lower Fees (dba Fee Disclosure) $2.9m
December 10, 2007 Nationwide Card Services $27.4m
December 10, 2007 Savingforcollege.com $2.3m

Source: The 451 M&A KnowledgeBase