Internet-Reliant Sector M&A Activity and Insights
Intangible Insights analyzes the Internet industry by functional area and by vertical. The functional areas, which we believe represent the vast majority, if not all, Internet-Reliant companies, are categorized using standard industry definitions for Content & Media, Applications, Merchandising, and Offline Service (not included in the index). We try to include pure play companies for each functional category in the 2i Stock Index, but some companies cross functional boundaries (e.g. Amazon, which generates significant merchandising revenue through the sale of third-party products but also has viable and growing revenue from its Amazon Web Services, an application function.) We include these firms because of their industry leading status.
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Part 4 of 2I’s Quarterly Internet and Digital Media M&A Report is an appendix of supporting information for our research posted in the first three sections of the Report.
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Overall M&A Activity
Clearly M&A transactions have slowed substantially during the last two quarters, with Q1-2009 being the slowest quarter for deal closings over the past 12 quarters. First quarter 2009 M&A activity is off 39% when compared to the recent peak of Q2 2007. However, if we stop and recognize that M&A transactions were getting completed at a historically blistering rate in 2007, we gain a bit of perspective. In fact, with all of the doom and gloom and economic meltdown, it is astonishing to see that M&A activity in Q1-2009 was off only 16% when compared to a more moderate time of M&A in Q2&3 2006. We fully expect that Q2-2009 also will be slow, but we’re starting to see signs that the last two quarters of 2009 could possibly be more active than the first two. With a 6-8 month cycle for typical transactions getting completed, look to the first two quarters of 2010 to be back at a pace more in line with historical averages.
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At 2i we read a wide range of financial resources, from the standard print media to the blogosphere to subscription databases. Depending on what you read and who you follow, there seems to be some consensus that the general economy may have bottomed, and although it may be a long tunnel, there could be some light at the end of it in Q4-2009 and Q1-2010. The Dow Jones Industrial Average, a leading economic indicator, is only down 3.5% since the beginning of the year. The unemployment rate, a lagging indicator, continues to rise to 8.9% currently. While the broad economy is a fundamental driver of the internet industry, we like to maintain our focus on the Internet-Reliant industry.
We’re posting four blogs over the next few days on the Q-1 State of the Internet Industry. Once all the blogs are posted, we’ll put them all into a PDF document and include it on our Reports page.
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You don’t have to be a techie to understand that Social Media is all the rage today. Social Media is not exactly brand new, but it is still grappling with issues of value creation, business models, communication platforms, etc. And while companies and “experts” are trying to sort these issues out, it is pretty clear that a handful of companies like Facebook, MySpace, Linked-In, Twitter and a few others have established a dominant and almost ubiquitous position in the arenas they serve.
But what about niche segments like healthcare? Are there still opportunities for companies out there? You bet. This week Intangible Insights brings to you a podcast of Joel Selzer, Co-Founder and CEO of Ozmosis, a social network that enables verified, U.S. licensed physicians to exchange medical knowledge. Joel shares his thoughts on some of our standard topics at 2i, including business models, monetization, valuation, and intangible attributes, such as the trust factor. Even during the idea stage of Ozmosis, Joel and his team were well aware how important “building trust” would be to their community and brand. Ozmosis’s tagline is “The Physician’s Trusted Network”. (See our related blog “A Unit of Trust is Worth How Much These Days?”).
You can listen to the podcast in its entirety or in four parts that track the summary below. The podcast is on the next tab over and you can also download and listen to the podcast here.
Following are a few highlights:
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What’s a business valuator to do? So much has changed in just the last few months, particularly the compression of asset prices across the board, that the normal data sources used for valuations are obsolete. This was the buzz and the subject of an excellent presentation by Stuart Bassin of the Zitelman Group at the latest Maryland chapter meeting of the National Association of Certified Valuation Analysts (NACVA), one of four primary associations for business valuation professionals (the others being AICPA, IBA, and ASA).
There is no shortage of databases to get business valuation metrics — BizComps for “Main Street Businesses”, IBA for asset transactions of 100% controlling interests, Done Deals for private and public middle market transactions. There are plenty of others. Each has its strengths and limitations and most provide some reasonably acceptable data points for companies based on industry, size, location, transaction type, and other important criteria. Where is the database, however, for valuation metrics in the months (and possibly years) following a loud pop of a worldwide asset bubble? Hmm, well . . . . there is none.
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Why We Blog
We find it odd but opportunistic that some of the best investment bankers in the internet and media industries don’t take full advantage of the internet to promote their services and views. We’re sure that they know how to blog and podcast and use social media to get their brand out there, but to our best knowledge no one is doing . . . yet.
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