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.

A 2007 deal done in 2009

Contact: Brenon Daly

In many ways, Autonomy Corp’s surprise purchase of Interwoven looked more like a 2007 deal than any transaction of a more recent vintage. In fact, both the purchase and the valuation line up almost exactly with acquisitions of public companies in 2007. Specifically, Interwoven’s enterprise value (EV) of $704m matches almost exactly the median EV of $701m for companies acquired in 2007. And Autonomy’s purchase values the content management vendor at 2.8x its trailing 12-month (TTM) sales, compared to 2.6x TTM sales for deals in 2007.

The Autonomy-Interwoven transaction stands out even more coming off of 2008, when public company deals took a hammering. The median EV/TTM sales multiple got cut nearly in half last year, falling to 1.4x from 2.6x in 2007. Meanwhile, the median purchase price sank to $159m from $701m.

Public company M&A

Year Median deal size Median EV/TTM valuation
2008 $159m 1.4x
2007 $701m 2.6x
2006 $393m 2.1x
2005 $346m 2.3x

Source: The 451 M&A KnowledgeBase