I attended the 7th Annual DeSilva + Philips Media DealMakers Summit last Thurs. It has been awhile since I have attended an investment banking conference. It was a fantastic place to see East Coast-style, New York deal making and more importantly to be in the catbird’s seat on the financial outlook in media for this year and beyond. The room was filled with an A+ roster of bankers, C-level execs, etc. I think I was one of the only startups in the room. Amongst all of the power brokers in the room, I was left with an eerie realization that the folks in the room were hit just as hard as everyone else. Here are some high-level observations from the one-day conference:
Smart Deals In 2008
I very much enjoyed DeSilva's recap from their senior partners (Jay MacDonald and Reed Philips III) on 2008's top media transactions. Although the mood was pragmatic and filled with a dash of fear in the audience concerning when we will exit this financial calamity, the partnership highlighted some major deals that did happen in 2008. Some noteworthy ones, as well as some trends:
- Traditional media services players made some big bets even when the market was priced high. These included WPP, Omnicomm, Comcast, and Waterfront Media. Comcast bought Plaxo for $175M and Daily Candy for $125M in 2008.
- New media made some bold moves like Waterfront Media acquiring Revolution Health for $100M to effectively take on the grand daddy of the space, WebMD.
The leaders in their respective markets are definitely going to exit the recession much stronger having picked up key components to their strategies and fair-to-cheap prices.
My Enemy’s Enemy Is My "Frienemy"
During the marketing services panel, key execs from WPP, Omnicom, and LBi talked about how they are using the downturn as a key opportunity to grow. For example, WPP did over 5 deals in 2008 focusing on acquisitions that add to their geographic footprint, as well as their technology that provides insights for their customers. They (WPP) even put a large minority stake into Omniture. The discussion turned to Google after awhile -- where the consensus was that Google is both a friend and an enemy. Or as WPP's Sheila Spence continued on this theme that they (Google) is their "frienemy." The panel believes that the natural tendency in downturns is that "science is favored over art." Meaning that performance-based solutions are favored over high-touch marketing services. They believe that the pendulum will swing back as the economy recovers. Google is clearly the leader in the science of advertising.
Yep, It’s Almost Impossible To Raise Money
The theme of startups with enough capital to last 18-24 months was echoed on the digital media panel. One of the funniest moments on the digital media panel was when Patrick Kenealy of IDG Ventures told the tale of two types of VCs in this economy - the "carry-on VC and the baggage VC" (in response to venture investments in 2009). As he put it, "some VCs have carry-on and some have baggage. VCs with baggage (their existing portfolio) are busy doing triage. New carry-on VCs don't have the baggage (new money in, not many investments) but are reading the bad press so that they are doing nothing. Habib Kairouz, managing partner at Rho Capital Partners, said that their own ad-based portfolio companies used to have 9-12 months of IO (insert order) visibility and now they only have 30-day visibility. Orders are still coming in but every month is on edge.
Overall, everyone is obviously feeling the impacts of the economy. Some lessons learned from the companies that were in attendance:
- If you have the capital or equity collateral, use this time to extend your capabilities by acquiring companies at fair valuations
- If you are a startup, the very rare company will be getting money in 2009
- Online advertising is still in its early infancy and huge businesses will continue to outperform and thrive against traditional players
In other words, my advice for you startups is to survive.