november 2016 client briefing - jegi.com · november 2016 client briefing 1 outsell’s 2016...
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Client Briefing November 2016 | 1
OUTSELL’S 2016 SIGNATURE EVENT
Outsell’s10th annual Signature Event, a collaborative effort between Outsell, a leading research firm for the information industry, and JEGI, a premier investment bank serving the information industry, was held October 5 - 7 at the historic Corinthia Hotel in London.
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(from left) Wilma Jordan (JEGI), Christoph Becker (GYRO), David Bell (GYRO), Robert Horler (Dentsu Aegis)
November 2016
CLIENT BRIEFING
1 Outsell’s 2016 Signature Event Co-Produced by JEGI
2 Outsell & JEGI Industry Outlook: Industry at a Tipping Point
4 Economist Outlook
5 JEGI Q3 2016 M&A Overview
6 Transaction Tips
7 Emerging Company Growth Tank
8 Exceptional Transaction Experience
Advertising Week NY, September 26th at the Nasdaq MarketSiteBuy or Die - Why M&A Drives Success and Relevance in the Digital Economy
This peer-to-peer, by-invitation-only event brought together approximately 150 senior executives and thought leaders from across the global information industry for three days of networking, learning and sharing ideas among peers on the theme of “Success Beyond the Tipping Point.”
Our 10th anniversay event was highlighted by an A-List roster of industry-leading executives as keynote speakers, including: Stephen Carter, Group Chief Executive, Informa; Ron Mobed, CEO, Elsevier; Tom Monahan,
Chairman & CEO, CEB; Martin Morgan, Former CEO, Daily Mail and General Trust; Craig Safian, SVP & CFO, Gartner; Scott Stephenson, Chairman, President & CEO, Verisk Analytics; and many more.
The conference opened with an “on the record” presentation from Anthea Stratigos, Co-Founder & CEO of Outsell, Inc., & Wilma Jordan, Founder and CEO of JEGI, highlighting key trends in the information industry. We also heard from Chris Giles, Economics Editor for The Financial Times. Excerpts from these presentations follow.
The global information, media and technology industry reached $1.5 trillion in revenue in 2015, led by strong growth in businesses with a technology underpinning, including advertising technology, marketing technology and CRM solutions. Health information & IT, HR services & solutions, and corporate training were key market segments driving growth. Looking ahead, we expect high demand to continue in these segments, resulting in above average growth rates.
Our world is all about data – how to harness it, analyze it, and optimize performance – and there is a strong appetite for data-intensive solutions… from marketing analytics to talent management to patient engagement. The following provides some key trends that are driving disruption in the information, media and technology industry.
2 | Client Briefing November2016
The Internet has had an extraordinary impact on global commerce and dialogue. Along with the good has increasingly come the bad: social media has polarized discourse, with few checks and balances on truth vs. fiction; cybersecurity has reached a state of emergency, with government, institutions and personal files all subject to attack, some of it state-sponsored; and smart devices are contributing to ever shorter attention spans (shorter than a goldfish’s, according to Microsoft), while excessive exposure to screen technology is inflicting neurological damage on young children (according to top addiction specialist, Dr. Nicolas Kardaras).
OUTSELL & JEGI INDUSTRY OUTLOOK: INDUSTRY AT A TIPPING POINT
Developments in augmented reality (AR), virtual reality (VR), voice recognition, artificial intelligence (AI) and Internet of Things (IoT) are freeing users from screens through predictive, listening and assistive technologies. Advertisers will be able to feed aggregated AR location data into data management platforms (DMP) and schedule ads using a demand side platform (DSP), turning AR applications into new advertising and marketing vehicles. Wide engineering applications through AR are expected for manufacturing, education, healthcare, etc.
The “Connected World” means business can be done anywhere, giving companies far more choice in where to locate to maximize profitability. This puts increasing pressure on countries, such as the U.S., that have globally high corporate taxes and wage levels, as well as more regulatory oversight. Many companies are “voting with their feet” by moving to more corporate-friendly countries, where corporate tax rates are declining, unlike in the U.S. Time will tell if Brexit is a “net positive” or an outlier anomaly.
At Outsell’s Signature Event, Anthea Stratigos and Wilma Jordan provided an overview of the global information, media and technology industry, and shared key trends that are shaping the future success of the industry.
The Next User Interface is No User Interface
Source: Outsell Research
Globalization Can Spell OpportunityTechnology Enables, Technology Disables
(from left) Ben Sampson (Outsell, Inc.), Tracey Armstrong (CCC), Jack Abuhoff (Innodata), Carr Davis (ISMS Solutions), Matt Turner (MarkLogic), Anthea Stratigos (Outsell, Inc.)
Outsell’s Signature Event: Emerging Company Growth Tank
Wilma JordanFounder & CEO
JEGI
Anthea StratigosCo-Founder & CEO
Outsell, Inc.
Client Briefing November 2016 | 3www.jegi.com
With skyrocketing consumer adoption (and ubiquitous connectivity) of mobile, and with millennials’ mobile first focus, mobile and money are becoming increasingly intertwined. Blockchain will become even more critical, as its capabilities have moved data encryption and security for financial transactions to a whole new level. Blockchain will revolutionize credit evaluations by enabling real-time assessments of behavioral spending and debt management with unprecedented accuracy. Blockchain is a good fit for processes that require record-keeping, security and multiple parties. It will shape the future of money, records and rights.
Rapid acceleration of disruptive technologies – robots, 3D printing, smart homes, IoT, drones – will create massive shortfall of computer specialists. There will be similar shortfalls for data scientists given the growth in big data technologies and the massive increase in available data. Only 29 of the top 100 U.S. universities offer data science programs. At the same time, the rapid onset of AI and robotics will have a crushing impact on low skill jobs. University of Oxford researchers have suggested that as many as 47% of lower skilled jobs in the U.S. could be lost to robotics, AI and other digital solutions by 2033.
Data-driven businesses, whether running a data business or leveraging data to optimize performance, are extracting gold from “data exhaust” inside and outside their organizations, such as output from CRM and marketing automation platforms, website browsing, ecommerce and more. These companies see data as
an enabler, a differentiator, and a leading indicator for overall business performance. With core data assets and competencies informing all stages of the product development lifecycle, information services firms must now think platform enterprise architecture, rather than product IT.
2015 was a very strong year for M&A in JEGI’s sectors, and 2016 saw more of the same, with nearly twice as many $1+ billion transactions vs. last year. High levels of confidence in the economy blended with lots of excess cash to help fuel the trend. Acquisitive companies are showing stronger growth profiles, as companies that have completed five or more transactions since 2010 grew at 10% per year on average, double the pace of companies with no more than one transaction. The hottest sectors include healthcare, cybersecurity, marketing solutions and technology, and business information.
Research and invention demand comprehensive access to all market data, which means breaking down silos between proprietary data and everything else. Value lies in bringing
Blockchain
Talent
Platforms & the Data-Driven Enterprise
M&A Market Outlook
it all – including “dark” (i.e., unused, unprocessed) data – together with new service models and new opportunities. To build successful business solutions from the almost limitless usage possibilities of big data, vendors must be able to use the attributes of data in very specific ways to answer very specific problems. Content providers will have to move into a more service-oriented paradigm that will require significant adjustments to operations and business models.
Fueling the Innovation Trend
If you look at the annual movement of world growth since 1980, there are some big spikes where world growth is up 5-6% a year, and some big troughs, the biggest being in the global financial crisis of 2009. If you look at the past four years, it has been relatively stable at just above 3%. The forecast predicts that global growth will improve slightly over the next three to four years.
The real bright spot in the global economy right now is India. It is the fastest growing economy in the world at the moment. China has surprised everyone by not being the problem that most expected. Brazil and Russia have had awful political and economic problems. However, the deep recessions in both these countries have not managed to derail the global economy.
The chart to the left shows another way of looking at income, GDP per person. The red line, UK, has done fantastically and outperformed the rest of the G7 over the first 40 years. The past 10 years, however, have not been as good, with a large dip as indicated on the graph. The UK has just finally returned to where it was before the financial crisis.
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ECONOMIST OUTLOOK
At Outsell’s Signature Event, Chris Giles, Economics Editor for The Financial Times, provided an economic outlook for the year ahead. Below are his thoughts on what to expect and how to better prepare for 2017.
Big changes in interest rates, are shown by the large spikes in the chart. The real story, however, is the long period of low interest rates over the past seven years. In some countries interest rates are decreasing below zero, which is worrisome for the global economy.
Client Briefing November 2016 | 5www.jegi.com
Mergers and acquisitions deal value skyrocketed 75% to nearly $200 billion in the first three quarters of 2016, driven by a number of large transaction announcements, despite an uncertain global economy, with a fragile European Union anticipating Brexit, a depreciating China, and a tense election cycle in the U.S. The number of mergers and acquisitions remained relatively steady through September 2016, across the media, information, marketing, software and tech-enabled services sectors. Overall, the year has seen 1,660
transactions announced, compared to 1,758 deals in the same period of 2015, and deal value surged to $187.1 billion, up more than 75% over 2015’s $106.2 billion.
Mega deals drove the rise in 2016 deal value, led by Microsoft’s pending acquisition of LinkedIn for more than $29 billion. Thirty-eight announced transactions have cleared $1+ billion of value thus far in 2016, compared to 21 over the same period in 2015. In addition to Microsoft/LinkedIn, five
additional M&A deals reached the $5 billion threshold in 2016 – compared to only two in 2015 – including the: • Quintiles Transnational Holdings
$13.5 billion acquisition of IMS Health, provider of information and technology services to the healthcare industry, announced in May
• The merger of global information company IHS and financial information services provider Markit, with a deal value of $6.2 billion, completed in July
• Oracle $9.1 billion acquisition of NetSuite, provider of enterprise resource planning (ERP) and omnichannel commerce software, announced in July
• CSC $8.5 billion acquisition of HP’s Enterprise IT Services division, announced in May
• Leidos Holdings acquisition of the Lockheed Martin Information Systems & Global Solutions business assets for approximately $4.1 billion, completed in August
But perhaps the biggest surprise was the announcement of Yahoo being sold to Verizon for $4.8 billion, a fraction of its value over much of its history.
For more information on Q3 2016 M&A, see JEGI’s full report here.
JEGI Q3 2016 M&A OVERVIEW
Author
Robert Dickey, Partner, Morgan, Lewis & [email protected]
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TRANSACTION TIPS
reflected in the corporate laws of Delaware and many other states, provides that the consideration to be received in a merger can be determined based on facts ascertainable outside of the merger agreement. This allows parties to a merger to provide that post closing price adjustments or indemnification provisions are simply means of determining the price to be received by the stockholder based on external facts, such as the amount of working capital or indemnifiable losses. In Aveta, the stockholders’ representative represented the stockholders during a post closing dispute over a working capital adjustment and earnout. The court held that, because the determination of the relevant amounts was based on facts ascertainable outside the agreement pursuant to a prescribed process (in this case, negotiation followed by a final determination by an accounting firm), the adjustment amounts were binding on non signatory stockholders.
The Audax court held that indemnification obligations for “fundamental” representations and warranties, which were not limited by time or amount, were unenforceable because they did not allow the amount of consideration received by each stockholder to be determined — at any point in the future the entire consideration could be clawed back in a successful claim. The court expressly did not rule on the enforceability of a clawback that was limited in duration or capped at an amount lower than the consideration received by the relevant stockholder. Finally, although it was not required to rule on the issue, the court noted somewhat ominously that “the propriety of stockholder representatives… is the subject of active and ongoing debate.”
The 2013 Massachusetts decision in Bailey v. Astra Tech case illustrates potential limitations in a stockholders’ representative being appointed to negotiate post closing matters. In that case, a post closing dispute arose and was being negotiated by the stockholders’ representative for all
The 2015 decision of the Delaware Court of Chancery in Cigna v. Audax rightly attracted attention by making clear that certain practices common among transactional professionals were not always effective. The core issue is that, in a merger, the target company stockholders are not usually parties to the merger agreement, which raises the question of binding these non signatory stockholders to the terms of the merger agreement for matters such as purchase price adjustments and indemnification. A separate but related issue is raised by the common practice of providing in merger agreements that the interests of all stockholders will be represented by a single stockholder’s representative.
The 2010 Delaware Court of Chancery decision in Aveta v. Cavallieri laid the foundation for Audax by clarifying the “facts ascertainable” doctrine, which is one of the grounds for binding non signatory stockholders to a merger agreement. This doctrine, which is
of the other stockholders. Frustrated with the pace of the negotiations, the minority stockholders banded together and negotiated their own settlement with the buyer, which included a release of a portion of the escrow to the buyer and the minority stockholders in amounts that they had negotiated. In arriving at its decision allowing this separate negotiation, the court focused on, among other factors, the fact that the merger agreement did not specify that the stockholders’ representative was the exclusive agent for negotiating on behalf of all stockholders, opening the door to the minority stockholders negotiating on their own.
Finally, Shareholder Representative Services v. Sandoz, a 2013 Southern District of New York decision, suggests a potential benefit to giving the stockholders’ representative an interest in the outcome. The procedural history of the case is complex, but the critical decision was the court’s dismissal of the stockholder’s representative’s claim on the grounds that the representative did not have legal right to sue because it had not itself suffered injury; it was merely making claims for others. The court suggested that this defect would be cured if the stockholders had assigned their rights to claims to the stockholders’ representative. Accordingly, this tactic should be considered, particularly in cases in which a claim by the selling stockholders against the buyer may be more likely, such as where an earnout or other contingent post closing payment to the former stockholders is contemplated.
The treatment of non signatory stockholders is a complex and still evolving field of law, and the hope is that principles and tips in this article may be helpful in navigating that field.
DOMake clear that post closing adjustments and other payment obligations are based on the “facts ascertainable” doctrine.
DON’TExpect as a buyer to collect unlimited indemnities from non signatory stockholders.
DOMake clear that the stockholders’ representative is the stockholders’ exclusive agent.
CONSIDERAssigning claims to the stockholders’ representative or otherwise having “skin in the game.”
Morgan Lewis corporate attorney Robert Dickey provides tips for non signatory stockholders and stockholders’ representatives on mergers.
Client Briefing November 2016 | 7www.jegi.com
EMERGING COMPANY GROWTH TANK
In a pre-conference session at Outsell’s Signature Event, eight innovative emerging growth companies were spotlighted as shaping the future of the information industry and as examples of next-generation solutions in action.
ETSIMOEtsimo helps people learn new things by making it easy for them to find, or discover, relevant content in any data. The Etsimo discovery platform uses machine learning and artificial intelligence to create a dialog between man and machine, enabling them to work together to achieve superior results. Etsimo’s logic layer can be used on top of any document collection to extract more value from available content, without messing with the current setup and monetization schemes.
PEACHJAR Peachjar is a cloud-based parent engagement platform serving over four million parents and growing steadily. School-approved flyers from organizations are simply emailed to parents and posted online for easy access. By disrupting the paper flyer business and digitizing the school flyer submission, approval, and receipt process, Peachjar helps eliminate paper waste, enhances time and cost savings for schools and community organizations, and ofters a more effective way for parents to ensure their children continue on a positive path when they’re not in class.
MATCHDECK.COMMatchdeck.com is a B2B matching engine. It aims to replace the existing marketing methods that companies use to find new partners, clients, and suppliers by using data analytics and algorithmic matching.
QUINTYPE Quintype brings to market a data-driven philosophy of real-time automation, advanced semantic analytics, hyper-personalization, and artificial intelligence – at a price that scales from launch to maturity. The Quintype platform is a cloud-based, end-to-end SaaS that helps run all media operations, from content creation, to audience engagement and growth, to monetization. It is a data-driven platform, because at the center of it all is a new advanced semantic analytics engine that is the “brains” of the system.
QUORUMQuorum enables anyone to influence the legislative process with powerful tracking, targeting, and outreach tools. The online platform tracks legislation and dialogue in Washington and all 50 states, leverages quantitative analytics to help users identify potential champions, and enables advocates to easily contact legislators and their staff.
UBIQUITY PRESSUbiquity Press makes open access publishing profitable and sustainable. Its platform is a powerful and reliable engine for university and society presses with fully professional infrastructure, services, and business support. With full provision of journal, monograph, textbook, research data and conference publishing, the company provides everything needed for a modern press. Its customers form the Ubiquity Partner Network, a truly international community with a high level of trust, support, and collaboration.
VERSIUM ANALYTICSVersium delivers predictive scores built from the company’s proprietary LifeData platform, which contains over half a trillion data attributes sourced from publicly observable and commercially available means. When matched to an enterprise’s CRM, marketing, or other internal data elements, easy-to-understand scores deliver specific ROI value.
UNBOUND CONCEPTS Unbound Concepts’ Artifacts improves the way that readers search, discover, and catalog ideas in content. Educators and librarians can access Artifacts through the platform or through participating partners’ distribution channels, such as Baker & Taylor and Follett. The Artifact taxonomy includes over 700 themes, topics, literary elements, instructional topics, maturity warnings, and more.
8 | Client Briefing November 2016
Wilma JordanFounder & [email protected]
Scott [email protected]
Tolman [email protected]
Richard MeadManaging [email protected]
David ClarkManaging [email protected]
Jeff BeckerManaging [email protected]
Tom PechtManaging [email protected]
Adam [email protected]
Bill [email protected]
Amir AkhavanManaging [email protected]
Joseph SanbornManaging [email protected]
LONDONClarity, 90 Long Acre London WC2E 9RA +44 20 3402 4900 | www.claritycp.com
NEW YORKJEGI,150 East 52nd Street18th FloorNew York, NY 10022 +1 212 754 0710 | www.jegi.com
BOSTONJEGI, CIC Boston, 50 Milk Street16th FloorBoston, MA 02109+1 617 294 6555 | www.jegi.com
EXCEPTIONAL TRANSACTION EXPERIENCE
JEGI’s client is mentioned first in each of the above transactions
Accordant is a leading data-driven, full-service programmatic advertising company and technology solution provider.
HAS BEEN SOLD TO
BJI is an integrated media company with extensive trade show, digital and other marketing assets.
PrizeLogic is a leader in digital engagement programs for major brands and retailers.
Wiland is a leading data-driven marketing technology and intelligence platform.
Bisnow is North America’s leading producer of commercial real estate news and events.
Evanta, sold for $275 million, is a leading peer-to-peer leadership platform for Fortune 1000 C-suite executives.
HAS BEEN SOLD TO
A PORTFOLIO COMPANY OF
HAS BEEN SOLD TO
HAS BEEN SOLD TO
HAS RECEIVED AN INVESTMENT
FROM
AN UNDISCLOSED INVESTOR
HAS RECEIVED A SIGNIFICANT
INVESTMENT FROM
Resource/Ammirati is a leading, US-based digital marketing and creative agency.
HAS BEEN SOLD TO
Light Reading is a leading, innovative content-driven media business focusing on the telecom industry.
FCBI’s TU-Automotive is a global leader in the B2B automotive technology events and information sector.
CARCO is a leading provider of tech-enabled and compliance-driven HCM and risk management solutions.
HAS RECEIVED A SIGNIFICANT
INVESTMENT FROM
Instantly is a leading provider of online and mobile audiences and insights technology tools.
A PORTFOLIO COMPANY OF
HAS BEEN SOLD TO
Stagnito (a portfolio company of Topspin Partners) and Edgell are leading B2B information, marketing and research providers.
Integrated Retail Intelligence
+HAVE BEEN SOLD IN A
PRE-PACKAGED MERGER TO
HAS BEEN SOLD TO
HAS SOLD
TO
Doug [email protected]
“I’ve worked with the JEGI team to sell two of my companies – one in 2005 and one this year – for over $100 million. In each case, JEGI’s trust relationship across the entire industry drove value and shortened the sale process. With its extraordinarily compre-hensive database of c-level contacts, JEGI can easily get key decision makers on the phone, live, without any preamble. This type of access is unique and hard earned. Also, without their help, the sheer amount of communication and due diligence involved in my last deal would have completely capsized the business. JEGI’s record speaks for itself: literally hundreds of successful closes. Thus, my advice to any seller: if JEGI wants to sell your business for you, let them! Working with their team is the best way to ensure a suc-cessful outcome at the highest value possible.”
Stephen SaundersFounder & CEO, Light Reading
“Having almost 40 years in the background screening business and a stellar reputation for quality, we were looking to find an in-vestor that shared our commitment to quality and fully appreciated our differentiation from the other companies in the space. Not having experience in choosing an investment banker, we faced a number of choices. A close confidant recommended JEGI to help us navigate the process and that recommendation was spot-on. JEGI had a stellar team and relentless focus. They were invaluable throughout the process, providing critical contributions in every stage. I wholeheartedly recommend JEGI to any prospective seller, and would use them again in a heartbeat.”
James OwensPresident & CEO, CARCO Group