Streamticker 2008: The Year in Mergers, Acquisitions, and Investments
When compared to the overall economic environment, 2008 was a surprisingly solid year for venture-backed fundraising in the streaming/online video industry. Many companies were able to raise money early in the year that positioned them for what, at this point, appears to be an elongated downturn. These include P2P companies such as Pando Networks, Inc. and GridNetworks, Inc., which raised their latest rounds of funding in March, and CDN companies such as Velocix (formerly CacheLogic), which raised $25 million in January, and Panther Express, which raised $15.75 million in February. Even as recently as October, online video companies Blip Networks, Inc. and Booyah Networks, Inc. were able to secure financing from notable investors Bain Capital, LLC and Kleiner Perkins Caufield & Byers, respectively.
"Those kind of investors understand the following point: it’s not if, it’s when," says Tony Naughtin, CEO of GridNetworks, which counts Comcast Interactive Capital, Panorama Capital, and Cisco Systems, Inc. as investors. "They believe in TCP/IP over-the-top solutions and they continue to support important technology companies like ours. When distributors begin to make significant archives available—such as last season’s episodes—people will use the web to enable that content. Whether that happens this year or in subsequent years, our investors know it’s coming."
However, venture capitalists’ ability to profit from such investments in 2008 was a different story. Across the board, venture-backed companies saw a slowdown in liquidity events. According to Thomson Reuters and the National Venture Capital Association (NCVA), during the first 9 months of the year, only 199 venture-backed M&A transactions occurred, compared to 271 over the same period in 2007. Even more telling was the lack of venture-backed companies that went public—just six, compared to 55 in the previous year. This represents the lowest volume since 1977.
"The crisis in the financial markets has further exacerbated an already troubling situation in that most venture-backed companies are postponing or abandoning an IPO exit for the foreseeable future," said Mark Heesen, president of the NVCA, in October. "Additionally, the lower M&A transaction volume can be attributed to the expected uneasiness of large corporations that are exercising more caution in their acquisition strategies of venture-backed companies until market conditions become more auspicious."
The story was no different in the public markets. Bellwether Akamai Technologies saw its stock price decline 50% in the first 9 months of the year, compared to 21% for the NASDAQ market.
"We are very optimistic about the future," said Paul Sagan, CEO of Akamai, at the company’s Analyst Day event in late November. However, he said, "visibility in the future is as low for every business as it’s ever been. It’s fundamentally different than when we went through this when the tech bubble burst because the consumer market and most other industries were unaffected so we could launch services and create visibility and stability. I don’t think that’s true for our industry right now."
In 2008, there were no headline-grabbing deals and no tech geeks turned billionaires. Instead, serial entrepreneurs such as Mark Brenner, who had great success in the 1990s selling Prevue Interactive (now TV Guide Interactive) and TVG, sold his latest company, Vidavee, to Vignette Corp. in April for $6.6 million—less than the $8 million the company had raised. It’s clear that the short-term perception for some in the industry has changed.
Others have been impacted as well. Tech bankers were forced to either dust off their resumes or to chase down deals once considered too small to bother with. Financial and industry analysts found themselves pushing 2008 predictions into 2010 and beyond. Gone were the $1 billion-plus transactions such as eBay’s $2.6 billion (excluding an additional $1.5 billion if certain financial targets were met) purchase of Skype in September 2005 or Google’s $1.65 billion purchase of YouTube in October 2006.
Acquiring for Quality, Not Quantity
Instead, deals got smarter. Companies began looking at acquisitions that wouldn’t necessarily make them meaningfully bigger but ones that could make them meaningfully better. Deals in 2008 weren’t about size; frankly, no company could afford it, and if one could, the risk of both investor backlash and failure was too great. Instead, companies began trying to find targets that weren’t focusing on where demand had been or where it currently was but on where it could be going. Transactions, though small, seemed more strategic in 2008 than last year. They may not have been headline-grabbing, but they had and continue to have the power to be game-changing.
The biggest deal occurred in February, when Yahoo! acquired Maven Networks, Inc. for $160 million, hoping not only to gain size from the company’s video hosting platform but, more importantly, to improve its capabilities by acquiring Maven’s video ad network and insertion solutions. At the time of the announcement, Hilary Schneider, executive vice president of global partner solutions at Yahoo!, stated, "Video is projected to be the fastest growing segment of the online ad market, and Maven will significantly help advance Yahoo!’s strategy, expanding the video opportunity for publishers and increasing the efficiency and effectiveness for advertisers. This is a big win for publishers, advertisers, consumers and for Yahoo!."
Figure 1. Yahoo! acquired Maven Networks for $160 million.
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From A(OL) to V(erizon) we look at the mergers and acquisitions that mattered in the last year. Here's a look back, with an eye toward what they portend for the future.
A look back on the past year's mergers and acquisitions, with an eye toward what they portend for the future.