Outsell, the leading provider of marketresearch and intelligence for the informationindustry, and The Jordan, Edmiston Group, Inc.(JEGI) collaborated on the sixth annual OutsellSignature Event titled “Break and Reset”, heldOctober 3-5 at the Four Seasons Hotel inHampshire, UK. More than 150 thought lead-ers and experts from the international infor-mation industry convened to discuss hot top-ics and the future of business information.

The Outsell event is the only global confer-ence convening the leaders of both strategiccompanies and private equity firms across theinformation industry. This year’s programwas one of the best to date and included “off-the-record” keynote presentations fromMartin Morgan, Chief Executive, DMGT;Blaise Simqu, President & CEO, SagePublications; David Craig, President,Financial & Risk, Thomson Reuters; DavidWilliams, Chairman & CEO, Merkle; EileenGittins, Founder & CEO, Blurb; ArielEckstein, Managing Director, LinkedInEMEA; and more.

The opening speakers provided their outlookon 2013’s economy, key forecasts and trendsin the world of information and discussedhow M&A valuations continue to fare.Excerpts from “on-the-record” presentationsfollow.

2012 Information Industry OutlookNed May, Vice President & Lead Analyst,Outsell

The information industry totals over $450billion in annual revenue. There continues tobe steady growth in the industry, even in thisfluctuating economy. The strongest growthdrivers over the next three years will be Search& Aggregation; Education & Training; andCredit & Financial.

In response to the 2012 Outsell CEOBenchmark Survey, information industryCEOs reported that the average gross profitmargin (revenue minus cost of goods sold) forthe information industry in 2011 was 50%, ascompared to 47% in 2010. The EBITDAmargin (earnings before interest, taxes, depre-ciation, and amortization) for 2011 was 16%,and the net profit margin (EBITDA minusinterest and taxes) was 10% of total 2011 rev-enue, showing steady profits in the industry.

The Outsell survey confirmed that contentcreation continues to be the primary cost cen-ter for information companies. In 2011, con-tent creation cost companies 20% of revenue,followed by sales costs (15%), general andadministrative costs (12%), IT and technolo-gy (8%), and audience acquisition (5%).

(continued on page 5)

Outsell’s Signature Event: Break and Reset

NOVEMBER 2012 Independent Investment Banking for Media, Information, Marketing Services & Technology

In This Issue...2012 Outsell Signature Event . . . . . . . . . . .1

M&A Playbook 2.0 . . . . . . . . . . . . . . . . . . . .2

The Economic Outlook . . . . . . . . . . . . . . . .3

The Social Media Ecosystem Report . . . .4

JEGI Q3 2012 M&A Overview &Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

M&A Conversation . . . . . . . . . . . . . . . . . . .6

Exceptional Transaction Experience . . . .8

To subscribe to JEGI’s Client Briefing Newsletter: http://tiny.cc/JEGI_Client_Briefing

JEGI hosted its second Emerging CompanyDinner of 2012 on September 13th at the 21 Clubin New York City.

Follow JEGI on Twitter:http://twitter.com/JordanEdmiston

(From left) Charles Teschner, EVP, Global Strategy,McGraw-Hill; Anthea Stratigos, Co-Founder &CEO, Outsell (moderator); Nadya Kohl, VP,Strategy & Business Development, ExperianMarketing Services; Matt Egol, Partner, Booz &Co.; and Scott Peters, Co-President, JEGI

(From left) Emily DiMiceli, Chief Strategy Officer,Financial & Risk, Thomson Reuters; AmirAkhavan, Director, JEGI; Loic Moisand, Co-Founder & CEO, Synthesio; Wilma Jordan,Founder & CEO, JEGI; and Paul Sykes, ChiefFinancial Officer, dmg Information Group

By Christopher Vollmer, Greg Springs and Harry Hawkes, Booz & Co.The digital marketing services space remains at the center of a verita-ble shopping spree. Google, Oracle and Gannett are among the leadersdriving the pace of acquisition in the industry, picking up smart start-ups to secure valuable technology and bolster theirdigital marketing offerings beyond online display andsearch advertising. In the first three quarters of 2012,the pace of acquisitions nearly doubled in theMarketing & Technology space, with 384 acquisitionstotaling more than $16 billion, according to Jordan,Edmiston. It is not too surprising to see such an acquisition armsrace. Digital media and technology players are underenormous pressure from customers, competitors, andinvestors to innovate their offerings and businessmodels beyond a reliance on advertising models toaccelerate revenue growth. This has led to an increas-ing reliance on high-stakes acquisitions, rather thanorganic growth, to rapidly establish new positions inthe value chain, especially since small players areoften the companies developing game-changingcapabilities and talent. In a competitive deal environment, such quick deci-sion-making – on both getting to “yes” to complete adeal and then moving to integrate and execute – hasbecome a critical competitive advantage. The oldbenchmarks for integration timelines – from four to12 months – are no longer effective in an environmentwhere acquisitions tend to be smaller and where buy-ers expect organizations to be fully integrated in less than 90 days.Combine this “need for speed” with the desire to preserve the acquiredcompany’s capabilities, which often drive digital value creation, and itbecomes clear that digital media and technology companies need amore contemporary playbook for acquisition integration—a DigitalM&A Playbook 2.0, if you will.This new playbook avoids traditional post-merger integration efforts –typically run under an approach that could be best described as heavi-ly structured, process-intensive, and inclusive – in favor of a “hurry-upoffense” that emphasizes speed and bursts of highly concentratedactivity to manage the integration process. This leads to better valueretention in the acquisition and prepares the overall company to facethe market faster and with greater focus.Speed is only one in a series of critical features in the new digital M&Aplaybook. This method requires the ability to interpret what is happen-ing in real time, the recognition that every situation is different, andthe right playbook to make decisions quickly, adapting to realities “onthe field” as they evolve. It also requires a set of players who know howto run the new approach and bring the requisite training, frameworks,methodologies, and decision-making to bear.Digital media and technology companies that have run a hurry-upoffense in their acquisition integrations employ six key success factorsthat enable them to avoid the pitfalls, such as founder disempower-ment and ambiguity over strategy, that are common in such integra-tions and which can cause slow decision making. This approach hasbeen “game tested” in some recent high-profile digital acquisitionsand should be considered by any executive faced with leading or plan-ning a digitally focused acquisition integration.Six Key Success Factors1. Invest in Due Diligence Top digital companies invest significantly indue diligence up front, to clearly establish a good fit between compa-nies. For many serial digital acquirers, like Google, due diligence is asmuch about evaluating the “soft” factors (i.e., talent, quality of tech-

nology, etc.) that will drive acquisition success as the “hard” ones (i.e.,valuation, synergies, etc.). 2. Speed is Critical They use speed as a strategic advantage, featuringrapid decision making through frequent informal huddles to share

learning and “call the next play.” They work from adynamic plan, prioritizing and reprioritizing based onnew knowledge—an adaptive process that acceler-ates the integration. They use tools that are “function-al” rather than “pretty” (such as Excel and Word docu-ments and Google Docs, as opposed to PowerPoint) tocollaborate and communicate. And perhaps mostimportant, they make active—basically daily—use ofthe 80/20 rule to focus their analysis and integrationactivities on those areas that really matter. 3. Don’t Break the Operating Model These companiespreserve the acquired operating model, or at the veryleast, they don’t “break” it. This gives special attentionto and provides support for employees of the acquiredcompany (perhaps an executive sponsor to act as aguide for operating in the new environment) and,possibly, creating a specific plan for transitioning theacquired operating model.4. Culture Matters They ensure that the informal fac-tors that contributed to the acquired company’s suc-cess are not lost. This requires a recognition that the“soft stuff” around culture really matters. Talent in theacquired company can see the acquisition as not onlya validation but also an exit opportunity, and mayenvision that ownership by a larger entity means

bureaucracy, low growth, and slowness. To combat this, successfulacquirers identify the key drivers of the acquired culture and organizea team specifically charged with managing the cultural integration.5. Identify Proof Points Successful digital acquisition practitionersdemonstrate integration success externally to markets. One way thiscan be done is to identify a short list of internal and external “proofpoints” that enable acquirers to build morale and prove integrationsuccess when these milestones are achieved. 6. Retain Talent They retain, and smartly deploy, acquired talent.Executives implementing this new approach to digital integrationknow that retaining the right talent is critical. It is surprising howmany digital acquirers are not able to retain key leadership, so it is crit-ical to have a short-term talent plan that identifies key players and laysout a strategy to keep them. The pace of change in the digital space and the high stakes for successare driving the need for a truly different approach to integrations formedia and technology companies, yet the acquisition drivers should bethe same as for all deals that deliver premium returns: capabilityenhancement. Capturing those premiums, however, requires more. Itrequires understanding the need for speed in integration and theimportance of moving quickly and precisely in preserving the uniqueaspect of the acquired company’s model that made the deal attractivein the first place. Those who remain convinced that the traditional,slow, and overly deliberate approach to post-acquisition integration isbest will risk “breaking” the acquisition or innovating too slowly to winin the marketplace. And if that is the likely outcome, they may as wellstay on the sidelines. ■About the AuthorsChristopher A.H. Vollmer, partner with Booz & Co. in New York, leads the firm’s glob-al media and entertainment practice and advises clients in digital media, consumermarketing, and digital technology. Gregory Springs, principal, specializes in businessmodel transformation for content-focused media and entertainment companies.Harry P. Hawkes Jr., partner in Cleveland, leads the firm’s global operations and per-formance improvement practice for the media and entertainment industries.

2 JEGI Client Briefing – November 2012

M&A 2.0: A New Playbook for Successful Digital Acquisition Integration

3JEGI Client Briefing – November 2012

Martin Wolf, Associate Editor & ChiefEconomics Commentator, Financial Times

A series of financial crises have enveloped theglobe over the past five years. We are worriedabout the health of finan-cial systems worldwideand, in particular, wherethe post-crisis westerneconomy is headed.Although Asia representsthe future of the global economy, the Westaccounts for half of the world’s economytoday, even after the financial crises.

We are not as far along in a recovery as wewould have hoped, but there are a few encour-aging signs. From the last world war to theend of the last century, the growth rates ofdeveloped countries, emerging companies andthe world as a whole were all very similar.Today, while the growth of developed coun-tries is down, the growth of emerging coun-tries is up – they are growing approximately3.5 times faster than the growth rate of theadvanced countries. If this growth rate contin-ues, the emerging world economy will doublein size in 12 years. The relative size ofeconomies is changing at extraordinary speed.It is reasonably assumed that this will continue,with the growth being dominated by China.

Global Real Rate of ReturnTaking a look at the global economy, there is agreat global macroeconomic disequilibrium.The single most important price in capitalism isthe global real rate of interest, which is the rateof interest on safe government securities. Weare able to get a good picture of the global rateby looking at the yield on index-linked govern-ment bonds in the UK and the US. As theorywould suggest, they coincide very closely.There have been two transformational tippingpoints in the past 20 years: during the Asianfinancial crisis in 1997 and then during thewestern financial crisis in late 2008/early 2009.

After the Asian crisis, the global real rate ofreturn fell from almost 4% to 2% and neverrose again. This was when Asians, the mostdynamic part of the world economy, stoppedbeing capital importers and became huge cap-ital exporters, changing the price of global cap-ital drastically. The housing bubbles startedexactly at this time, and the real price of long-term assets was thrown off-balance. Since thatcollapse in the real rate of return, the domi-nant feature in our financial system has beento try to find safe ways to achieve higher returnthan the market will actually give you. This is,in aggregate, impossible. The global financialsystem is operating in a savings surplus world,and we have been absorbing savings very, verybadly.

After the second turning point, the westernfinancial crisis, the global real rate of interestdropped to zero, and we moved into a proto-depression. The only reason we are not in an

actual depression isbecause of the powerfulmonetary and fiscalstimuli in effect, strongerthan we have ever seenbefore in the history ofthe world. This is not

coming to an end any time soon, as the USFederal Reserve recently announced an indefi-nite continuation of this unconventional mon-etary policy. We are not living in a normalworld – it is a “contained depression” world.

GDP in the “Great Recession”After the global GDP collapse in early 2009, asynchronized recovery in all economies tookplace, based on the financial and fiscal supportthat was provided. Taking a look at currentGDP of the G6 countries (the six largest devel-oped economies in the world), they are splitinto three groups. The first group consists ofthe US and Germany, which are the only twocountries that have GDP values slightly abovewhere they started before the financial crisis.The US has been the most successful in termsof GDP growth. The second group comprisesFrance, Japan and the Eurozone as a whole.This group’s members are fairly close to theirGDP levels before the crisis, but now theirgrowth rates have gone completely flat. Thethird group consists of the UK and Italy,which are again in decline.

Prospects for the FutureOver the next few years, it is overwhelminglyprobable that the US will be the most dynamicof the big economies. A key reason is that theUS is not export reliant. The next four years willshow the recovery that we hoped to see in thelast four. This will hold true under either presi-dential party; the election will not make muchdifference. Growth rates are likely to be in the2-3% range, which is not a strong recoveryunder US standards, but is still positive. Threepercent growth is likely, since housing invest-ment in the US is picking up, which is a veryimportant part of the US economy. In spite ofanxiety and the unconventional monetary poli-cies in place, inflation will remain contained; weare not on the brink of hyperinflation.

Over the next few years, central bank interestrates will remain very low. We will live in anincredibly easy monetary environment for along time. Countries with their own centralbanks, and Germany as the safe haven of theEurozone, will have low long-term bond rates;however, the Eurozone countries with insolven-cy risks will not. Despite efforts of theEuropean Central Bank, there remains a risk ofbreak-up in the Eurozone; it would cost trillionsof dollars to stop this. But we hope to see arebirth of confidence in the Eurozone, as politi-cians stand behind the Euro and capital flows tothe periphery are renewed. ■

The Economic Outlook

GDP in the “Great Recession”

Source: Financial Times

“We are not living in a normalworld - it is a ‘containeddepression’ world.”

“...it is overwhelmingly proba-ble that the US will be the mostdynamic of the big economies.”

4 JEGI Client Briefing – November 2012

The Social Media Ecosystem Report: Rise of Users, Intelligence & Operating Systems#SMEcosystem

The following edited excerpts are from a report recently prepared byAmir Akhavan (amira@jegi.com), who covers the Technology, MarketingServices, and Interactive sectors at JEGI. To download a copy of the full report, which was prepared in collaborationwith the Interactive Advertising Bureau (IAB), please go tohttp://slidesha.re/VzgmA8. All information sources are footnoted in thefull report.Although social is only one part of the overall media mix, it is increasing-ly impacting the framework of how organizations operate – from cus-tomer service and R&D to HR and marketing.

New Social Subscription Models While built on “free to member”models, both Facebook and LinkedIn have incorporated paid options.Facebook charges for virtual goods and has taken an additional approach(initially in New Zealand), allowing users to promote content by payingto place it at the top of friends’ newsfeeds. LinkedIn has a tiered sub-scription model where members can pay a yearly fee for additional data.New social network App.net is unique in that it offers no free option, butrather promises a commercial free, real-time socially driven informationstream with an open API for developers, with tiered pricing for users anddevelopers. App.net give members full control of their data.Realizing the Potential of Location-Based Services For location-basedservices to take off, the value proposition needs better definition, withclear guidelines for engagement. While targeting ads, based on predict-ing mobile users’ activities, is a great monetization strategy, a compellinguser value proposition could spawn other revenue opportunities andhelp build a successful platform (as VCs would say, “Build a business, notan application.”) Over time, location-basedtechnology will enable advertisers and mar-keters to serve timely offers, alerts or ads (paidmedia) and allow the user to push interactionto their network (earned media). Personalizing the Web The Facebook OpenGraph access for brands is a significantFacebook development. The brand app inter-acts with consumers to allow for rich consumerdata and engagement capture, which ties backinto the operating system and CRM – if a userpermissions the install once, the brand contin-ues to capture the user’s data and activity.Interactions and socialization with the userprovide brands with reach through paid ads,earned placement, and stories on brand owned

channels. The interactions also offer rich insights and relevance for tar-geting (including email) and ROI measurement.Unified Technology Suites Flex Their Muscle A new ecosystem of pro-graming applications has developed that manage internal and externalsocial operations. This programing application space is increasinglybeing dominated by full service Operating Systems with a unified tech-nology suite sitting in CRM. Social Media Management Systems (SMMS)applications and buying platforms are becoming commoditized, asincreasingly robust functionality is built into Operating Systems that pulltogether the complex ecosystem, offering brands, marketers, and agen-cies full operational management. The transformation is evident among

large CRM and ERP providers, which have engaged in sig-nificant organic and M&A investment, to integrate socialdata and applications into their platforms. Some key platform offerings include those for listening(including throughout an organization); ad buying (for tar-geted/segmented campaign execution to amplify earnedmedia); distribution and planning (to drive earned mediaby leveraging channels, user communities and networks);publishing/syndication (to push/schedule content throughsocial channels); data (to aggregate social API’s and con-tent); attribution measurement (allocating credit for inter-actions that drive desired engagement); analytics andintelligence (bringing together listening, measurementand buying capabilities to better understand and marketto users), among others.CRM Drives the Conversation Salesforce.com has been apioneer in this space and believes that the rise of socialnetworking enabled employees and customers to find,share and collaborate around information and businessprocesses. For the first time, companies can capture real-time intelligence for customer relationship managementpurposes, creating both issues and opportunities for CRMproviders in terms of accessing social data and developingtechnologies to gain market insights.

Salesforce’s acquisitions, have enhanced the CRM platform with a socialfocus: social media monitoring, analysis and publishing. The acquisitionshave also sought to solve real-time collaboration and communicationissues across the enterprise. The recent acquisition of Buddy Mediaexpanded Salesforce’s capabilities in social commerce, analytics andsocial ad management. Buddy Media’s suite of tools powers Salesforce’s social operating plat-form, designed to help companies better combine their paid, owned, andearned media strategy. As Buddy Media CEO Mike Lazerow recentlynoted, “The idea is to use the system to create page content, track whichmaterial resonates with users, and then promote that content via paidadvertising placements on Facebook to drive further engagement.” Jeff Ragovin, the company’s Chief Strategy Officer, said the goal of theacquisition by Salesforce is to connect customers’ backend office withrevenue driving operations by combining listening, engagement, pub-lishing, and measurement with CRM.

5JEGI Client Briefing – November 2012

Bringing Greater Transparency to CRM According to Mr. Ragovin, noone is accurately tracking online and offline customer engagement withmeaningful insights or developing ways to reach those targets effective-ly over time. Using Salesforce for all customer communication will bringfull transparency to the CRM platform, so that brands can reach users,customers, and prospects in real-time. Apart from CRM, enterprises are also using social media for internal non-customer facing initiatives, such as talent management and resourceoptimization. Both Oracle (via itsTaleo and SelectMinds acquisi-tions) as well as SAP (via itsSuccessfactors and Jobs2Webacquisitions) have been active inthe talent management, engage-ment and social recruiting space. Intelligence & Analytics A newbreed of Social Intelligence com-panies, technology driven agen-cies, will be charged with gener-ating actionable insight anddefining social ROI. Companieswill be faced not only with creat-ing analytic measuring standardsbut also with tying social mediato campaign attribution model-ing. It is critical for brands toendorse influence and advocacy as pillars of their social strategy andtherefore equally important for attribution models to correctly measurethe impact of influence for brands.Big Data Enables Enhanced Business Intelligence User identification,engagement and amplification represent a big data challenge, sincemost conversations occur outside the owned media environment. It is

hard to identify, engage and amplify this massive audience at scale in acost effective manner. To do so, it takes a combination of listening, analy-sis, insight, scoring, and intelligence in an active real-time machine learn-ing platform. Companies like Salorix and IBM are addressing this bigdata issue.Participating in social at scale is challenging. These social analytics andamplification platforms enable massive scaled engagement across mul-tiple channels in real-time. By leveraging social intelligence – the “brain”

that can classify data and weedout noise – brands can partici-pate in public conversations,using three primary methods:automated (triggered responsesto a brand’s friending/followusers); semi-automated (cus-tomized feed-back requiring priorreview by a social media analyst);and manual (live brand manag-er/user conversations, typicallyreserved for crisis intervention ortop brand influencers/advocates).IBM has made a significant bet inthe Enterprise MarketingManagement (“EMM”) space,positioning itself as an end-to-end marketing services/solutions

provider, with an announced $20 billion available for acquisitionsthrough 2015, to continue its shift in focus to software. One of IBM’s lat-est initiatives is the combination of multiple recently acquired companiesto form a full service EMM suite, providing a 360-degree view of the useracross all engagement channels. Social Media plays a key role in thisstrategy, as IBM is focused on driving business decisions via client data. ■

In the past 18 months, information companieshave derived an average of 13% of sales fromnew products. This was a significant drop from2010, when 20% of sales were generated bynew products. However, new product develop-ment is the number one growth priority forinformation industry executives this year andnext, so this percentage is expected to increase.Other growth drivers identified by CEOs in theSurvey were IT infrastructure, sales, people,content and global expansion.

Seven Trends That Matter:Economic Turmoil The state of the economy ledto tremendous uncertainty for businesses andcontributed to the decline in product develop-ment, as noted above. Companies continue totransform and need to rebuild their models, inorder to move forward and initiate growth inthe industry.

Rise of Government Intervention Governmentintervention is on the rise across all industriesand regions. Unfortunately, governments arethe only ones left with “any cards in their pock-ets to play right now.” Businesses have had totread lightly, due to economic uncertainty.

Talent Wars and Skills Gap Due to the softeconomy, young workers are having difficulty

finding employment, and aging workers arestaying in their jobs longer, while advances inmedicine are keeping them healthier. Com-panies need to start investing more in educationand training programs to make sure their work-force is knowledgeable about key changes in themarketplace and technological advances.

“Onsofting” Content Creation Informationcompanies are starting to incorporate technolo-gy and software into more of their internal pro-cedures. Outsell defines “onsofting” as the useof technology and software solutions to createcontent, instead of using people. This practiceis expected to become more prevalent in theindustry.

Authority’s New Look It takes more than just atrusted brand to sell your product today. Thereare now three important components: a trustedbrand; a trusted network; and the wisdom ofthe crowd. Companies need to learn to managethe complexity of what this authority looks like.

Ads Give Way to Commerce Over the nextdecade, traditional B2B “push advertising” (i.e.,vendors promoting themselves to their poten-tial customers) will give way to “pull advertis-ing” – where the customers will advertise thebusiness solutions they need, and companies

will respond if they can help. This movementbegan about 10 years ago, when companiesstarted spending more of their marketing budg-ets on their own web sites, as opposed to spend-ing through traditional media companies.Digital media companies will step up efforts toprovide “how-to’s” for companies that need tolearn how to promote themselves efficiently.

Mobility’s Next Wave With the growth inmobile devices, the information industry willneed to be able to create and deliver all contentthrough mobile networks.

Three Trends That Are Over-Hyped:Social Media B2B social media marketing isonly effective for a small group of players ineach industry. Information companies do notneed to follow suit just because everyone else isdoing it.

Open Access Open access will not replace paidcontent, especially in the education andresearch sectors. Open access and paid contentwill co-exist.

Workflow Not all jobs need to have their ownworkflow solution. “Micro-workflows” arebeing imbedded into existing products for bothdesktop and mobile devices. ■

Outsell’s Signature Event (cont. from p. 1)

6 JEGI Client Briefing – November 2012

Swimming against the tide of economic andpolitical uncertainty, media and technologyM&A has been robust so far in 2012. 946M&A transactions in media, information,marketing services and technology totaled$49.4 billion over the first three quarters of theyear. This record-setting pace, up by about50% in both volume and value over 2011 lev-els, was driven primarily by smaller deals. 91%of transactions during the period were less than$50 million in value, and only 6% were morethan $100 million. However, overall M&Avalue still increased 52%, due to nine dealsover $1 billion in value, according to JEGI.

Strategic buyers accounted for 85% of transac-tions in the first three quarters of the year;most were small, tuck-in acquisitions or acqui-hires (i.e., acquisitions primarily to secure thetarget’s engineers and other talented staff ).Corporate acquirers are generally feeling an

imperative to invest infaster growing revenuestreams and new servicesfor their customers to off-set competitive pressureand rapid shifts in theirtraditional markets.Nonetheless, many haveyet to tap their historical-ly strong balance sheetsto do so.

Typically, one of the twokey elements to a healthyM&A market is an abun-dance of available cash.However, the other keyelement, confidence, appears to have beenmissing among the many strategic companiesthat have shied away from making larger, trans-formative acquisitions, despite their strongcash positions. Once the election has beensorted out and there is a greater level of certain-ty, it is possible that companies will return in abigger way to the M&A market.

Meanwhile, private equity firms have becomemore active, especially on deals over $100 mil-lion in value, where PE firms were the buyerson 26% of these transactions. They too haveaccess to historically high levels of capital, asPE firms raised record amounts in 2007 ($313billion) and 2008 ($312 billion). This capitalis generally subject to a five-year investmentwindow and must be put to work or relin-quished. In addition, PE funds will continue

to be sellers of companies they acquired duringthe 2006-2010 period. One other telling trendin PE was that nearly 40% of all PE buy-outsin 2012 have been a PE owner selling to a PEbuyer.

Active BuyersWhile transactions are smaller in size, the goodnews is that the market is being driven by adiverse set of active buyers. The top 30 mostactive buyers were led by the Ad Agencies,which accounted for 30% of the transactions.Digital Media companies were next with 23%of the deals, followed by Information companies(19%) and Private Equity Firms (14%). Thisreflects the trend that buyers are stepping out-side their traditional footprints to broaden theirbusiness models, and that convergence acrossthe media, information and marketing land-scape continues.

JEGI Q3-12 M&A Overview & Outlook: Smaller Deals & Strategic Buyers Dominate

M&A ConversationModerator: Wilma Jordan, Founder & CEO, JEGIGuest Speaker: Lou Eccleston, President of S&P Capital IQ andChairman of the Board of S&P Dow Jones IndicesWilma You are in the seat of a real transformation at McGraw-Hill. Tellus about the thinking that led dividing McGraw-Hill into two compa-nies: McGraw-Hill Financial and McGraw-Hill Education.Lou The thinking is clear on a couple of fronts. Education and Financialare very different businesses. There is the opportunity to create twoseparate companies, with separate stocks and capital structures; one isa transformational, lower-growth/lower-margin business, and one is ahigher-growth/higher-margin busi-ness. This ties directly to M&A, and theopportunity to leverage balance sheetsto unlock value and get the right capi-tal structure, with the right focus ongrowth. Getting the right SIC code isalso a big deal, as it enhances the abil-ity to speak with analysts who under-stand the financial side of the business. Wilma You termed your new division a “billion dollar start-up” with29% operating margins—that is exciting—and you mentioned taking12 different profit and loss statements and combining those intoONE—can you talk about that process?Lou It was painful. When we looked at these different lines of busi-ness, they were all doing very well by themselves, but you have to think

about scale and long-term competitors. Scale becomes a real problem,especially in the financial world today, where technology is an impor-tant enabler of solutions. How many infrastructures can you build?How much duplication can you afford? What we found was that wehad some nice businesses making $200 million or less, but when youput them all together, you have to worry about scale. You need to getit right on the operating model and in duplication—that is the founda-tion for growth. The reason I went to one P&L is that I found one of the biggest obsta-cles to growth is when people spend time talking about things that

don’t fuel growth, such as internal allo-cations. The key is to keep the conver-sations about clients, markets andgrowth – not on which P&L we shouldallocate a cost. Also, you need people to execute yourstrategy. The concept of a billion dollarstart-up…no matter how advanced thetechnology is and how much capital

you have, it really comes down to people. If the employees want thecompany to win, it will perform much better. So, communication isimportant. People need to believe the plan is achievable, and thenthey need to understand their role in it and believe they will succeed ifthe company succeeds. Communication is hard – this is the “blue col-lar job of leadership.” People tend to push difficult development con-versations to the back, but they are important to growth.

“Communication is hard - this is the ‘bluecollar job of leadership.’ People tend to pushdifficult development conversations to theback, but they are important to growth.”

The chart below shows transaction activity bysector. Marketing Services & Technology hasbeen by far the most active, with large increasesin both number of deals and value. B2C andB2B Online Media & Technology and Database& Information Services are also very active.Mobile Media & Technology is a fast-growingsector for M&A, with nearly double the numberof deals and value year-over-year.

Within Marketing Services & Technology,agency services continue to be a very active areafor M&A, as brands continue to push the enve-lope on how they spend their marketing dollarsand traditional agencies transform to stay in the

game. Recent examples include Dentsu’s $4.9billion buy-out of Aegis, WPP’s $540 millionpurchase of AKQA, and Publicis’ $539 millionacquisition of LBi.

Predictions for 2013JEGI sees four likely trends for M&A continu-ing into 2013:

1. Strategic Buyers – with historically high levelsof liquidity and the need to transform their busi-ness models, we could see larger, more transfor-mative M&A deals for strategic buyers in 2013.

2. Private Equity – record amounts of capitalraised in 2007 and 2008, facing five-year invest-

ment windows, will motivate PE funds to con-tinue as active buyers in 2013.

3. Lenders – focusing on larger transactions andcompanies with strong recurring revenuestreams, “must have” information, and technol-ogy driven models, banks will continue to beactive lenders, and debt covenants may loosen abit.

4. M&A Market Dynamics – buyers who canfind opportunities in volatility and uncertaintywill do well; high-growth, emerging companieswill continue to be the “sweet spot” in the 2013market. ■

JEGI Client Briefing – November 2012 7

Wilma Lou, talk to us a bit about the launch of S&P Dow JonesIndices—certainly this was a combination of two iconic brands thatprovide solutions for global investors. How did this combination comeabout, and what do you expect from this group, in terms of revenuesand growth?Lou We had a long relationship with the Chicago Mercantile Exchangefor licensing. The index business is fundamental: you either license fortransactions on an exchange or assets under management with anETF. When we looked at where the world was going competitively andfrom a regulatory perspective, we saw a lot of failed mergers. Thethree big trends were: 1) linkage deals – exchanges are thinking aboutcombining technology in order to scale; 2) focus on products to drivetransaction fees and assets under management; and 3) regulatory ben-efits – with the centralization of execution and clearing, this becomesa big part of it. We had to look at these trends and see which directionwe wanted to go. McGraw-Hill was looking for more of an economicand strategic relationship, as opposed to a purely commercial/transac-tional relationship. We wanted to be able to diversify into executionand clearing without having to actually do it. With this merger, we gota wonderful brand, intellectual capital, footprint, awareness, and alsorevenue diversification, which was a great mix. There is solid growth inthis kind of business. Wilma Lou, you have also mentioned adding 130 computer scientistsand tech people in six months—how did you achieve that, and whatdid you learn about this talent market?

Lou S&P Capital IQ and S&P Dow Jones Indices has an organic acqui-sition strategy. We are a poster child for small deals. When we lookedat our combined businesses, we asked ourselves what we were miss-ing. We needed portfolio capabilities and global real-time capabilitiesfor distribution, etc. We didn’t want to buy a large company to achievethis. We have found that in most large-company M&A transactions,the entity being sold has been spending its time over the past fewyears getting ready for sale, rather than building the business. As aresult, an acquirer can potentially expect to spend millions of dollars togrow technology capabilities after the acquisition is complete. Also,acquirers need to figure out how to make a new company fit withintheir existing organic strategy. We want to keep our organic strategy as is and find software and tal-ent to add to the company, so we started looking at early-stage IP buysall over the world. We were fortunate to find three good businessesand complete all three acquisitions in the first six months of the year—one in Toronto, one in Paris, and one in London. With these three acqui-sitions, we added 130 scientists, engineers, and mathematicians. Andinstead of subsuming these companies into S&P Capital IQ and S&PDow Jones Indices, we kept them as talent centers right where they arelocated: the company in Toronto became our global portfolio risk ana-lytics group; Paris became real-time; and London leads our valuationsand pricing business. The entrepreneurs are able to continue to domore of what they want to do, instead of conforming to the corporateplan. Through this type of organic growth, we now have new talentand capabilities to fill our gaps. ■

Business-to-Business Media 11 38

2012 2011

Value ($MM)

% Change

B2B Online Media & Technology

Exhibitions & Conferences

Consumer Magazines

Database & Information Services

B2C Online Media & Technology

Education Information, Technology & Training

54

18

20

33

183

48

5,834

371

2,238

5,160

5,989

2,432

118% 526%

31%

117%

80%

39%

27%

(8%)

100%

74%

(89%)

71%

9%

(41%)

24 235

71

39

36

46

196

44

11,677

648

240

8,807

1,441

Media, Information, Marketing Services & Technology M&A Activity

No. of Deals Value ($MM) No. of Deals ValueJanuary -September January - September

Industry Sector

Total 635 $32,531 49% 52%946 $49,444

Marketing Services & Technology 212 8,764 81% 89%384 16,593

No. of Deals

Mobile Media & Technology 56 1,706 89% 92%106 3,282

6,522

Transactions Reaching Nearly $700 Million in Value in 2012

JEGI’s client is mentioned first in each of the above transactions.

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Bill HitzigCOO

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Scott PetersCo-President

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Richard MeadManaging Directorrichardm@jegi.com

Wilma JordanFounder & CEOwilmaj@jegi.com

Tom PechtManaging Director

tomp@jegi.com

Tom CreaserEVP

tomc@jegi.com

Adam GrossCMO

adamg@jegi.com

Tolman GeffsCo-President

tolmang@jegi.com

Contact Us to Discussthe Marketplace and Your Company’s

M&A Strategy. David ClarkManaging Director

davidc@jegi.com

October 2012

SaaS-based applicationsfor the consumer products

licensing industry

has been soldto

September 2012

has sold

to

a division of DMGT plc

a leading peer-to-peerleadership platform

for Fortune 1000 C-suite executives

for $94,000,000

July 2012

the leading Canadian producer of trade shows, conferences

and consumer showsto

has sold

for $53,000,000

October 2012

an award winning publisherof online primary source collections

for university research

has been sold to

October 2012

has sold

the leading providerof sales enablement and business

intelligence SaaS solutions

to

&

a portfolio company of

August 2012

a global leader in digitalengagement specializing in

promotions and loyalty campaignsacross mobile, social and web

has been sold to

July 2012

parent company of

has been sold

to

a leading consumer enthusiastcommunity, content and

ecommerce provider

May 2012

a SaaS marketing platform (CRM) for real-time, multi-stage, and

multi-channel marketing including social media, email, and mobile

has been sold

to

April 2012

a leading provider ofintegrated event solutions

anda portfolio company of

The Riverside Companyand

VS&A Comm Partners Fund IIhas been sold

to

January 2012

has sold the assets ofFUTURE MUSIC US

including

to

a portfolio company of

July 2012

the leading provider of news, information, events, and data to the global travel, meetings

and hospitality industries

has been sold to

Amir AkhavanDirector

amira@jegi.com