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Deal Maven
Volume 1, January 2012
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Digital Media & Commerce M&A Stats: 2011 Year in Review

Overview

M&A deal activity in Digital Media & Commerce increased considerably in 2011, reports Coady Diemar Partners, a leading boutique investment bank serving the digital media and ecommerce sectors. On a dollar value basis $116.3 billion of digital M&A transactions were announced in 2011 compared to $59.3 billion in 2010, an increase of 96%.

This activity level and growth over 2010 compares favorably to M&A deal activity globally as preliminary data for 2011 point to no growth on a global basis, a decline of 5% in Europe and 15% growth in the U.S., a bright spot for M&A activity. The year started strongly and then M&A deal activity slowed in the second half of 2011 over concerns regarding European debt and a pullback in financing.

Digital Media & Commerce M&A Outperforms

The substantial growth in announced deal value in 2011 in the Digital Media & Commerce markets is driven by both an increase in deal values and a greater number of deals. In aggregate, the number of announced deals increased 91% from 266 to 507.


While there are a large number of transactions in Digital Media & Commerce, particularly below $50 million in size, M&A deals in excess of $50 million in value accounted for nearly 98% of announced and disclosed deal value in both 2011 and 2010.

The following chart compares for 2011 and 2010 the number of transactions in three different size groupings above $50 million.


The total number of transactions above $50 million increased 44% from 2010 to 2011 with the highest growth in number of transactions in the two largest size categories. Approximately 88% of the deal value in 2011 is represented by transactions greater than $250 million in value, up from 81% in 2010. There were 25 transactions above $1.0 billion in deal value in 2011, accounting for 64% of total deal value compared to 15 transactions in 2010 accounting for 52% of total value. Private Equity deals accounted for approximately 15% of the deal activity above $50 million in 2011 compared to 21% in 2010.

Performance by Sector

We track mergers and acquisitions activity in eight key sectors of the digital media & commerce market including Advertising Technology & Services, Agency & Analytics, Digital Content, eCommerce, Information, Mobile, Social Media and Software.

The most active sectors in 2011 on a dollar value basis were Software, Digital Content, Mobile and Information. These sectors generally are more mature with larger companies resulting in larger transaction sizes. The Agency & Analytics and eCommerce sectors also demonstrated substantial growth in transactions and more modest total deal value.


The Largest Deals

As noted earlier, 2011 is characterized in part as a year of larger deals with the top 10 largest transactions following:


Perhaps it is not surprising that the largest announced transactions are being undertaken by large and leading companies in digital media and commerce with substantial cash including Apple, Google, HP and Microsoft.

Google is Most Active Acquirer

Google was the most active acquirer in 2011 with 21 identified announced transactions, the largest of which is its pending acquisition of Motorola Mobility (Google's largest ever), announced in the third quarter and expected to close early this year. Most of the leading digital media companies were also active in 2011 as the top 10 most active acquirers list demonstrates.


Multiples Paid

We also track data on multiples paid on announced deals. For 2011 we have data for 154 of the 507 transactions (30.4%) and 85 of the 266 transactions in 2010 (32.0%).

Presented below are the median revenue and EBITDA multiples paid by quarter for 2010 and 2011.


The multiple spike in the third quarter of 2010 reflects three mobile software transactions at very high revenue multiples and three different marketing software transactions at high EBITDA multiples.

The following chart presents quarterly M&A deal activity for both number of transactions and aggregate dollar value, since the beginning of 2010.


The second quarter of 2011 was the most active from a transaction value perspective while the fourth quarter of 2011 experienced a sharp rise in the number of announced deals. There is considerable variability in sector activity level from one quarter to another.

Wrap-Up

2011 was an exceptionally strong year for M&A activity in the digital media & commerce sector with escalating transaction volumes commencing in 2010 and nearly doubling in 2011. Strategics are driving this market, although financial buyers are increasingly active in larger deal sizes, and are willing to pay high multiples in competitive situations particularly for differentiated technology and to enter new markets.

The year was also characterized by a large number of strategically driven, technology-oriented smaller transactions and by an increase in the number of larger deals, such as Microsoft's acquisition of Skype and Google's pending acquisition of Motorola Mobility.

Broadly, strategics continue to grow cash reserves, reaching an unprecedented $1.5 trillion at year-end, while financial sponsors were more active in 2011 and have $400 billion to invest.

The Digital Media & Commerce market is characterized by rapid growth fueled by fundamental shifts in consumer behavior associated with internet usage, mobility and continued technological innovation. We have written widely on this topic including our two most recent pieces, Mobile Wave in a Sea of Digital Change and Unleashing the Digital Opportunity. All of our pieces can be accessed via the Resources tab at www.coadydiemar.com.

2011 was a very strong year for M&A and investment in the Digital Media & Commerce market, notwithstanding a difficult economic environment. We anticipate that 2012 will be another year of strong growth in M&A and investment in this market.

Happy New Year!

Colin Knudsen
(212) 901-2620
colin@coadydiemar.com

Chris Ensley
(212) 901-4160
chrise@coadydiemar.com

If you would like to be added to our email distribution list for periodic industry and market commentary, please contact Ryan Williams at ryan@coadydiemar.com.

This announcement is neither an offer to sell nor a solicitation to buy securities. This announcement appears as a matter of record only.


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