Adele Morrisette, of North Haven Partners, Inc. moderated a very interesting panel on the latest deals in the content that included Michael J. Kelly of AOL Media Networks, Mark McLaughlin of Verisign, Inc. and Dennis Miller of Spark Capital. What's different this time around from the bubble era of deals? Michael notes that today deals are vetted more vigorously, and yet multiples are still in the 5x to 6x range. Where's the value? Apparently in the structure of the deals, but there are different categories according to Michael. There are deals for companies that won't scale easily, for example, that may not reach those lofty heights. Dennis notes that widespread broadband, lots of online ad revenues and new excitement from equities markets are combining to create another huge disparity between some "old" media companies and "new" media companies, which are kicking in multiples more in the 40x range. Mark has a different take on deal as a corporation acquiring properties, citing the difficulty of bringing companies public in an era of stringent IPO compliance rules, which tends to favor private deals rather than the public route. Fortunately he sees that there are now much better rules for evaluating multiples than in the "bad old days."
Adele popped the key question to Michael: USD 25 million for Jason Calacanis' Weblogs Inc.? "We wanted Jason," Michael made clear, wanting both his personality and a leg up with leading weblogs in a rapidly expanding marketplace. But still, they felt that they had the metrics on their side with the potential for cross-promotions throughout the AOL network that standalone silos may not be able to leverage effectively alone. Dennis saw the Capital IQ acquisition by McGraw-Hill's Standard & Poor's unit in a somewhat similar light, a company that took advantage of an opportunity to outshine financial content majors via a well-executed Web product that was able to grow quickly. Factset and others were in the race but all of a sudden McGraw-Hill's multiple tripled and nailed the deal. By contrast, other companies were offering higher multiples for the virtual aggregator Moreover, but Mark saw the superior infrastructure offered by Verisign offering Moreover a stable platform on which to grow cost-effectively.
Michael looks for revenue accelerators as key acquisition targets for AOL, through building audience but also when infrastructure can increase the yield from individual users through superior infrastructure and staffing. Video search was one area in which AOL moved early on, but is now looking at companies taking video to the next level that can index content in near-realtime and create a whole new market for video content search products. Owning a piece of the landing zone for searches looking up premium video for sale is also a key component for that strategy.
Paid content is definitely on the radar for these acquirers, but it's going to be difficult to get pricey subscriptions based on old models when there is a plethora of content available for free, legitimate or otherwise. "It has to be part of some other bill," Michael notes, underscoring the need for effective ecommerce management as a key criteria for any content company acquisition. So in his mind Video on Demand (VoD) services are likely to be tied to existing services with service infrastructure that can manage these transactions effectively, fueled both by payments and more effectively targeted advertising.
Great stuff, but where are deals really going? As fast as they can towards plays that are chasing the users whose habits are changing radically across a broader array of content formats and channels than ever before. In B2B markets it's somewhat different, where people paying for value relevant to solving business problems, Mark noted. But this is likely to become more the case in the consumer space as the solutions to solve problems get far closer to highly personalized needs. Given the plethora of VC firms chasing deals and companies more willing to go out and cut their own deals, it makes for a pretty heated bidding environment. Dennis sees a middle tier of companies that make better targets in this environment where it's easier to work with somewhat mature businesses that can be combined with other pieces to create strong revenue accelerators more quickly. The rewards may be lower than ground-floor or mezzanine investments but the risk profile is considerably lower. Jason Calacanis piped up from the audience and noted that companies seems to be able to offer better deals than VCs, as his own buyout attests. Dennis noted that high net worth investors are generally unwilling to have the patience required to put down money for the roll-up-the-sleeves work required to work with young visionaries - especially when the exit money may be hard to define attractively.
Long story short, deals are still made up of investors willing to buy into a vision and to make those visions hold up to concrete expectations. May the multiples be rich and the payoffs in line with expectations.
