Millennial Media doubles on debut

Contact: Ben Kolada

Taking advantage of the emerging market for mobile advertising, platform vendor Millennial Media leapt onto the public stage Thursday, creating nearly $2bn in market value in its debut on the New York Stock Exchange. The company priced its 10.2 million shares at $13 each – the high end of its proposed range. Shares traded at about twice that level in early afternoon. Millennial Media is trading under the symbol MM. Morgan Stanley, Goldman Sachs and Barclays led the offering, while Allen & Company and Stifel Nicolaus Weisel served as co-managers.

Millennial Media, which has nearly 75 million shares outstanding, currently garners a market cap of $1.9bn. That values the company at 18 times trailing sales, in the ballpark of where we estimate Quattro Wireless was valued in its sale to Apple, but about half the valuation we believe AdMob received from Google. Those two companies are Millennial’s primary rivals, although Millennial stakes its claim as the largest independent mobile ad platform provider.

Interest in advertising technology has been building throughout both the equity and M&A markets. Earlier this month, for instance, telco SingTel announced that it was acquiring Amobee for $321m. (We estimate the startup, which provides mobile ad campaign management software, garnered roughly 9x trailing sales in its purchase by the Singapore telco giant.) Meanwhile, the Adtech pipeline is far from dry, even after a recent slew of big-ticket exits. Earlier this month, advertising intelligence firm Exponential Interactive filed its paperwork to go public. The company, which plans to trade under the symbol EXPN, increased revenue 35% last year to $169m.

Profiting from the battle for the datacenter

Contact: Brenon Daly

Although the battle between Hewlett-Packard and Cisco Systems over outfitting datacenters is still playing out, some winners have already emerged. First and foremost, the shareholders of 3Com have benefitted tremendously from the turf war between the two tech titans. On Wednesday, HP said it is picking up 3Com for $3.1bn, bolstering its ProCurve lineup with 3Com’s switches and routers, which are Cisco’s core products.

Terms call for HP to hand over $7.90 in cash for each share of 3Com. That’s roughly 50% higher than 3Com shares garnered in an unsuccessful buyout two years ago and nearly four times the price of 3Com stock just one year ago. Additionally, it means that anyone who bought shares in 3Com over the past half-decade will be above water on their holdings when the sale to HP closes in the first half of next year. We can’t say that we’ve seen many situations like that in recent transactions. In most cases this year, the sale prices of public companies – particularly those that have faded in recent years, like 3Com – have been below the market prices they fetched back in 2007. And that was before any takeout premium.

But there are other parties that stand to come out ahead in the HP-3Com deal, as well. We have to imagine that the bankers at Goldman Sachs are glad (if not relieved) to have their client, 3Com, looking likely to have finally been sold. Goldman was advising the networking vendor back in 2007 on its proposed sale to Bain Capital and Huawei Technologies, which dragged on for a half-year before being scuttled due to national security concerns. There are success fees and then there are well-earned success fees.

Meanwhile, on the other side of the desk, Morgan Stanley also has reason to celebrate its work with HP. Not only is the pending purchase of 3Com the largest enterprise networking transaction since mid-2007, but the deal continues a strong recent run by Morgan Stanley. This week alone, the bank advised HP on its $3.1bn purchase of 3Com, AdMob on its $750m sale to Google and Logitech on its $405m acquisition of LifeSize Communications. Altogether, that means Morgan Stanley has had a hand in three of the four largest deals this week.

Goldman regains its Midas touch

Contact: Brenon Daly

Goldman Sachs is having a September to remember, after an uncharacteristically quiet run throughout 2009. We noted in our mid-year league table report that Goldman, which topped our annual rankings 2005-07, had slipped to a distant seventh place in the first half of this year. Since the beginning of September, however, the bank has regained its Midas touch.

Goldman has worked on four tech deals announced so far this month, with a total equity value of $7.9bn. (The September spending accounts for some 60% of the value of all deals that Goldman has advised on so far this year.) The transactions: sole advisor to eBay on its $2bn Skype divestiture; advisor to Intuit on its $170m purchase of Mint; sole advisor to Adobe on its $1.8bn acquisition of Omniture; and sole advisor to Perot Systems in its (relatively richly priced) $3.9bn sale to Dell, which stands as the largest tech transaction in five months.

By way of a final thought on Goldman’s return, we’d note the unusual situation that popped up in the buy-side deals that Goldman worked last week. We can’t recall the last time we saw any bulge-bracket bank get a print one day (Intuit’s purchase of Mint) and then turn around the very next day and get a print that’s 10 times larger (Adobe’s purchase of Omniture).

New face at the head of the league table

Contact: Brenon Daly

Fittingly for a year that saw an unprecedented amount of upheaval on Wall Street, Barclays came from nowhere in 2008 to take the top spot on the 451 Group’s annual league table. And when we say it came from nowhere, we mean that literally: The British bank didn’t have a hand in a single IT deal involving a US-based company in 2007. It owes its dramatic rise to its purchase of Lehman Brothers, a bank that figured at the sharp end of the ranking for each of the past three years.

The unexpected ascent of Barclays snapped a three-year run by Goldman Sachs as busiest tech adviser, with Goldman slipping back to second place. JP Morgan Chase, boosted by its acquisition of Bear Stearns in May, rebounded to third. It was a notable comeback for JP Morgan, which had plummeted to 11th place in 2007. Furthermore, JP Morgan was one of the only major banks to actually increase both the number of deals it worked and the value of those deals, year over year.

However, we would quickly add that these banks were the best in a very bad year. Consider the fact that Barclays, which headed our 2008 ranking with $30.6bn worth of advised deals, would have barely squeaked into 10th place on our 2007 ranking. Meanwhile, Goldman’s total amount of advised deals last year ($26.8bn) was just one-third the previous year’s tally ($78bn) at the bank. (Note: We will be sending out an executive summary of the league table in the daily 451 Group email on Tuesday, with the full report available later this month.)

Overall 2008 league table standings

Rank Bank 2007 standing
1 Barclays N/A
2 Goldman Sachs 1
3 JP Morgan Chase 11
4 Citigroup 4
5 Evercore Partners 8

Source: The 451 M&A KnowledgeBase

Red-zone M&A

So-called ‘New Europe’ is emerging as an important Web 2.0 market. Revenue growth is steady in the mid- to high-double digits compared to low-double digits for the established US web portals. That hasn’t gone unnoticed by global companies scrambling to tap into these faster-growing markets. The latest example is the rumored sale of leading Czech Republic search engine and web portal Seznam. Goldman Sachs has reportedly been tapped to head the sale. Google, Microsoft and private equity shop Warburg Pincus are said to all be serious contenders, according to the Czech media.

Seznam is closely held. Founder Ivo Lukacovic owns just over two-thirds of the company, with the rest held by investment firms Tiger Holding Four and Miura International. The 450-employee portal says it took in about $55m last year, up from about $30m the year before. Revenue is expected to reach $80m for the year. Seznam is reportedly being shopped around at a valuation of $900m. At a multiple of 11 times sales, that is a premium compared to a similar deal inked by Warburg Pincus last year. The buyout firm acquired Seznam competitor NetCentrum for $150m at a multiple of 6.5 times revenue. Nonetheless, compared to recent US Web 2.0 deals, the rumored valuation of Seznam is in line with, or at a discount to, market prices.

If a deal for Seznam gets done, the purchase will stand as one of the largest Internet deals ever inked in the former Soviet block. And as the Eastern European Internet market continues to grow, we believe so will the M&A activity from anxious companies trying to make an early land grab. Meanwhile, other search engines may look to go it alone. Yandex, a leading Russian portal, has reportedly been preparing for a US public offering for some time now, but an almost nonexistent IPO market may lead it to consider a sale, instead. We’re fairly certain that Google and Microsoft stand ready to provide the liquidity for either (or both) of these companies if the public markets can not.

Recent transatlantic search M&A

Date Acquirer Target Deal value TTM Revenues
July 18, 2008 Google ZAO Begun (Russia) $140m Not disclosed
May 26, 2008 Google (China) Not disclosed Not disclosed
January 8, 2008 Microsoft Fast Search & Transfer (Norway) $1.24bn $167.75m
December 4, 2007 Warburg Pincus NetCentrum (Czech Republic) $155m (reported) $24m (reported)

Source: The 451 M&A KnowledgeBase