Economic concerns and tight credit markets contributed to a 17% drop in merger and acquisition deal volume within the marketing, information and digital sectors during second-quarter 2009, when compared with the first quarter.
The 150 transactions tracked by investment firm Petsky Prunier totaled $2.4 billion, a transaction dollar drop of 6%. Petsky Prunier’s calculations exclude WebMD’s merger with its parent company, HLTH Corp., in a transaction valued at approximately $1.3 billion.
Among entities making purchases, strategic buyers remained more active than private equity firms and accounted for the largest portion of overall investment with 69 transactions (46% of total) worth an estimated $1.3 billion. Including both control and minority investments, financial buyers accounted for 54% of deal volume and 46% of dollar volume in the quarter.
Interactive advertising was the quarter’s most active segment, with 38 transactions and approximately $439 million in value. Battery Ventures and Scale Venture Partners’ $70 million investment in ExactTarget, an on-demand email and one-to-one marketing solutions provider was the largest transaction, accounting for 16% of the segment’s aggregate dollar volume.
Interest in mobile advertising, a subsegment of Interactive Advertising, continued with 14 deals during the quarter worth approximately $73 million.
Digital Media was the second most active segment in 2Q09 with 37 transactions worth approximately $607 million. Two subsegments within digital media, user–generated content (UGC)/social media and niche content, continued to attract venture and growth capital investment, as consumer appetite for proprietary and unique content continues to grow.
Notable UGC/social media transactions included Digital Sky Technologies’ $200 million investment in Facebook, valuing the company at approximately $10 billion, Canaan Partners’ $6 million investment in Associated Content and Allen & Company’s $5.3 million investment in Gather.com.
Niche content companies accounted for seven acquisitions and five investments, including Barclays Capital’s acquisition of Bounty Group for $79 million, Sequoia Capital’s $16 million investment in Sugar, America Online’s acquisition of Patch Media and Going.com and Azure Capital Partners’ $7 million investment in BlogHer.
Within the marketing technology segment, the content management subsegment was the most active with five transactions this quarter for approximately $181 million. Representative transactions included Open Text’s acquisition of Vignette for $160 million and OutStart’s acquisition of Hot Lava Software.
The Software and Information segment saw six acquisitions and two investments in the market research subsegment. Notable transactions included Spectrum Equity and Bain Capital Ventures’ acquisition of SurveyMonkey, InfoUSA’s divestiture of Macro International to ICF Consulting for $155 million, S&P’s sale of Vista Research to Guidepoint Global and Microsoft’s sale of Greenfield Online’s Internet Survey assets to ToLuna for $40 million.
Among buyers and investors, venture and growth capital investors accounted for the largest portion of total deal volume during the second quarter, with 76 transactions (51% of total) worth an estimated $890 million. Draper Fisher Jurveston was the most active financial investor among Marketing, Information and Digital Media targets, announcing two investments this quarter and six investments overall in 2009. Additionally, Foundry Group, Foundation Capital, Clearstone Venture Partners, Catalyst Investors, Canaan Partners and Accel Partners each announced two transactions during the quarter.
Strategic buyers accounted for the majority of control transactions during the quarter, although many of these deals were small. Strategics acquired 69 companies for a total of $1.3 billion. America Online, Time Warner and Amazon.com were the most active strategic buyers, consummating two transactions each.
Private equity firms continued to face hurdles financing large leveraged buyouts. During the second quarter, private equity buyout firms completed five deals, up from three transactions in 1Q09. In addition to Barclay’s acquisition of Bounty Group, other private equity transactions included LLR Partners’ acquisition of I–many, a contract management software provider, for $23 million, and ZM Capital and Palladium Equity Partners’ majority investment in Cannella Response Television, a direct response television media services company, which was supported by mezzanine financing provided by VSS Structured Capital Fund.
“While the deal market continues to be challenging, transactions are still being completed,” John Prunier, partner at Petsky Prunier said in a statement. “Venture and growth investment is the relative sweet spot in the market, but with exit horizons generally longer and lower in value than they were when many funds were raised, liquidity and terms are still not as expansive as they have been or, we believe, will be again. Similarly, with credit markets remaining tight, leveraged buyouts remain largely beyond the grasp of their private equity sponsors.”
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