M&A In 2007: Dollars, Deals and Databases

In the context of media and digital communications, growth by acquisition has become the necessary short-cut to maintaining/growing market share and diversifying revenue streams. Innovation, particularly with regards to technology, is at unprecendented levels and matched only by the rate of diffusion into consumer markets.

Enterprises have no chance to set the agenda in these product and sales cycles unless supported by a substantial R&D function, like Apple, Nokia, Microsoft and Google. Everyone else is either a habitual acquisitor or a holder of a business plan with the phrase “trade sale” underlined three times.

In the US, for the 12 months up to December 2007, M&A activity in the media and information industries totalled more than US$110b - up 32% on 2006. A total of 838 transactions occured, ranging from News Corp’s protracted purchase of Dow Jones (US$5b+) through to Discovery Communication’s takeover of HowStuffWorks for US$250m.

By category, US$31b+ alone was spent on the acquisition of marketing and interactive services, very much reflecting the pattern in the Australian marketplace (consider Photon, Bluefreeway and Hyro), with the exception of some high-end media deals such as Fairfax Media-Rural Press and the News Ltd-Federal Publishing.

However, the real M&A fireworks belong to the ‘Database Information Services’ category, which saw total deals in 2007 reach US$21b - up from US$1.8b in 2006. Interestingly, the average value of those deals in 2007 was US$780m, signficantly up from the 2006 average of US$46m.

Likewise, the deal value in the consumer magazine sector rose almost 300% - from US$1.8b to US$6.9b+ - on the back of 54 seperate deals.

In short, 2007 witnessed some remarkable growth in M&A activity, but it wasn’t arbitrary. Those categories which experienced sizeable jumps in activity have a number of factors in common, including the need to consolidate very fragmented markets, particularly with regards to intermediaries, like agencies and digital marketing specialists.

Secondly, the preference for data services and media attracting very specific, niche markets indicates a growing realisation that data, market segmentation/targeting and audience engagement models are increasingly setting the strategic agenda for the advertising and marketing industry.