• by Gavin O'Malley  @mp_gavin, April 4, 2007

The online media sector and marketing services led the way with 119 total transactions valued at a combined $6.5 billion--or more than half of total deal value in the first quarter of 2007, according to investment bank The Jordan Edmiston Group, Inc.

Thanks to staggering liquidity and mature online business models, the interactive M&A marketplace should remain strong throughout this year, JEGI reports.

Online media remained very active in the first quarter of 2007, with 72 transactions representing over $1.7 billion in value. The number of transactions was up 71% over the same period in 2006, but deal value fell by 31% with fewer mega-deals. The largest deals for this sector included eBay's $310 million acquisition of StubHub, and Reed Business Information's acquisition of BuyerZone.com.

The sector continues to see a very healthy flow of mid-size transactions, as corporate and financial buyers snap up online audience and ad revenue to build online advertising scale, according to JEGI Managing Director Scott Peters.

"What's impressive is to see these relatively new businesses get traction so fast," said Peters. "But their business models are strong and seem to be scaling very well."

The interactive M&A marketplace continues to chase strong growth in online advertising--as Internet ad revenue reached nearly $17 billion in 2006, up 34% over 2005. Interactive media companies, major diversified media groups and private equity investors all remain highly interested in acquiring fast-growing companies that provide the media, delivery and performance components of online advertising.

Video advertising is leading the online ad parade, according to JEGI. Indeed, eMarketer recently projected that online video advertising will reach nearly $3 billion by 2010--an astounding 63% annual growth rate from 2006 levels. By 2010, online video advertising is expected to capture 12% of total online ad revenue, most likely making major inroads into TV budgets.

"To be sure, a lot of moving parts need to click for this hyper-growth to materialize, including the challenges of ad management and reporting, and issues surrounding user-generated content, especially copyright," the JEGI report warns.

Moderate interest rates, investor liquidity, and the continued drive for new corporate growth each supported the continued record pace, despite scattered warning signs of a potential slowdown in the U.S. economy.

"Ten years ago there was nowhere near as much liquidity as there is today," said Peters. "This is also a big reason why we're seeing far less IPOs today, which is probably the best thing for smaller companies that want to stay agile and fast on their feet."

Vibrant M&A activity continues in the marketing and interactive services sector, with 47 transactions valued at $4.7 billion in the first three months of the year--up 17.5% and 166%, respectively, over 2006 levels.

Driving transaction value in this sector were ValueAct Capital's $1.6 billion acquisition of Catalina Marketing in February, the $800 million deal by management to take Vertrue private with One Equity Partners, Oak Investment Partners and Rho Ventures, and Nielsen's $327 million acquisition of the 40% of NetRatings that it did not already own.

Other notable deals included the sale of Cymfony to Taylor Nelson Sofres and General Atlantic's buyouts of AKQA and Network Solutions for undisclosed, but rumored large prices.

Overall, the M&A market maintained a brisk pace in the first quarter of 2007 with 207 announced transactions valued at nearly $13 billion, as tracked by JEGI across 11 media and information sectors.

Excluding M&A activity for newspapers, which declined in the absence of a Knight-Ridder scale event, overall deal volume and value rose 17% and 43% respectively versus the first quarter of 2006, which jump-started a stellar year for mergers and acquisitions.