BtoB Media Business - July 2010 - (Page 18)

M&A A bridge to new markets Hearst creates new digital marketing services business unit with iCrossing acquisition M&A BY MATTHEW SCHWARTZ ANALYST INSIGHT Tom O’Connor Managing director, Berkery Noyes H earst Corp.’s acquisition of digital marketing agency iCrossing provides a huge boost to the media company’s efforts to diversify its digital investments and offer new online capabilities to clients. Hearst acquired iCrossing June 3 for a reported $325 million. The agency, which will operate independently and retain its name, provides the foundation of a new business unit called Hearst Marketing Services. So far, it is the only component of the unit, but add-ons are expected to follow. “I would think there would be other deals,” said Don Scales,” president-CEO of iCrossing, whose clients include Epson America and Toyota of America. “Big companies need big numbers. By adding a few more into the mix, we’ll have a larger material impact on Hearst.” Matthew Petersen, senior VP-Hearst Magazines, who is overseeing Hearst Marketing Services, said: “We are committed to support and fuel iCrossing’s continued growth independently, and it is extremely important for a company like iCrossing to make appropriate investments, which may include acquisitions, to stay ahead of the market.” Petersen joined Hearst in March from Meredith Corp., where he was senior VP of Meredith Integrated Marketing. During his tenure at Meredith, he oversaw the integration of several marketing agencies acquired by the publisher, including New Media Strategies and Big Communications. Hearst’s acquisition of iCrossing underscores the growing appetite of traditional publishers for digital marketing companies, as clients cut back their advertising schedules and increase their online investments. Interactive marketing spending in the U.S. is expected to reach nearly $30 billion this year, according to Forrester Research. “Digital marketing and advertising is a burgeoning market that has become very complex, so media companies need interactive marketing services, such as the ones provided by iCrossing, to holistically service brands or advertisers,” said Wilma Jordan, CEO of media investment bank Jordan, Edmiston Group, which represented Hearst in the transaction. She added that she sees transactions such as the iCrossing acquisition becoming more common. Petersen said iCrossing’s ability to integrate search into its digital marketing services was at the heart of the deal. iCrossing is the largest U.S. search agency, with search revenue accounting for nearly 70% of its $121 million total revenue in 2009, according to Advertising Age, a Media Business sibling publication. “We needed something that had the size and the capacity to help achieve a number of the revenue synergies we think exist throughout the whole of Hearst,” Petersen said. Wait for multiples to bounce back om O’Connor, managing director of media investment bank Berkery Noyes, recently discussed how the M&A market is shaping up for the rest of the year. Media Business: What’s your outlook for the media M&A market? O’Connor: We do think we’ll see the amount of deal flow continue to improve through the balance of 2010 and really take off in 2011. What we have seen is private equity firms selling their portfolio companies and some corporate divestitures, such as [Reed Elsevier liquidating most of its b-to-b portfolio in the U.S.], but what we haven’t seen is the entrepreneur step up. However, we do think the entrepreneur who wants liquidity, considering the conversations we’ve been having, will be part of that deal flow in 2011. MB: What kinds of media properties are buyers eyeing these days? How is the appetite for events? O’Connor: Both financial and strategic buyers tend to look for the same types of properties. If you’re in the events business right now, you’re probably not selling. There have been a lot of event deals [recently] because the multiples have been down, so sellers are now waiting for multiples to come back up. But everybody’s looking for digital solutions, Web-enabled properties, SAS-type models and more online solutions on the advertising front. MB: Do you see the trend of traditional publishers acquiring marketing services companies accelerating in the next several months? O’Connor: You will see large, strategic buyers looking more and more at concentric and neighboring markets. Some publishers have limited growth in their core markets, so they’re looking for marketing services companies as a way to pick up the growth and see these types of companies as an ex—M.S. tension of their core products. T A roundup of recent mergers and acquisitions Date Property Description Seller Buyer Thomson Reuters M&A ACTION 6/10 Complinet Provider of global compliance Complinet information solutions for the financial services industry Expocomm Trade shows and exhibitions Events for the telecommunications industry 6/10 Reed E.J. Krause & Exhibitions Associates 6/10 Navalshore Trade shows and conferences Navalshore United for the maritime industry Business Media Source: Jordan, Edmiston Group Transaction Database, 2010 18 | Media Business | July 2010 | mediabusinessonline.com http://www.mediabusinessonline.com

Table of Contents for the Digital Edition of BtoB Media Business - July 2010

BtoB Media Business - July 2010
Contents
Great Media Websites
Events Special Report
Budgeting for 2011
Sales & Marketing
M&A
Audience Development
Production
People
Benchmarks
Endnote

BtoB Media Business - July 2010