Partners at Green Square, Corporate Finance Advisors to the media and marketing sector, cast their eyes over the latest industry deals and look ahead to the next tranche of acquisitions.
With the Yahoo acquisition, is Verizon about to become a media giant?
As we’ve been predicting for the past couple of years, Yahoo has finally been bought. There have been a number of putative suitors for the venerable (or faded, depending on your point of view) internet giant over the years, but earlier this week (Monday) it was finally bought, by US mobile telecoms giant Verizon for just under $5bn (£3.7bn).
First of all, this may mean the end of Yahoo - or at least the Yahoo we’ve all come to know (and often been frustrated by) over the past couple of decades. As many commentators have said, Yahoo has been sliding into irrelevancy for years, and nothing - not even the 2012 appointment of most recent chief executive, Google wonder girl Marissa Meyer and her acquisition spree that saw her spend billions on hot properties such as Tumblr, CoolIris, Polyvore and Brightroll - could arrest it.
In some ways, it’s a sad story, and an indication of the utterly Darwinian nature of Silicon Valley. Some 22 years ago, Yahoo was a digital pioneer, one which almost certainly played a crucial role in energising the current generation of tech mavens, from Mark Zuckerberg through to Messers Brin and Page. For many readers of this blog, Yahoo may have been one of the first internet sites they ever visited. But business, and Silicon Valley, does not care about nostalgia, or warm fondness, or formative experiences. In true Darwinian fashion, only those who adapt survive, or they go the way of defunct or faded brands such as Compaq, MySpace, NetScape, Commodore, Lycos and AOL.
Talking of AOL, it seems almost certain that Verizon, which also owns the once-mighty ISP-cum-media giant, will merge it with its latest acquisition. And we’ll come to this in a moment.
But first let’s return to Yahoo’s decline. Verizon, one suspects, will be mightily pleased with its purchase - not only has it stolen a march on its great rival, AT&T (which was also sniffing around Yahoo, along with a bunch of other suitors, including our own Daily Mail) but it’s also bagged itself a bit of a bargain - even taking into account that the deal doesn’t include Yahoo’s hugely valuable stake in Alibaba, China’s version of eBay and Amazon; or the still-successful Yahoo Japan.
One group less likely to be happy are Yahoo’s long-suffering stockholders. It is incredible to think that just before the dotcom crash of 2000, Yahoo was worth a staggering $125bn. As recently as 2008, Microsoft made a $44.6bn offer for the company, which was - in one of the most catastrophic misjudgments in corporate history - turned down by founder and then chief Jerry Yang. Microsoft’s offer then represented a 62 per cent premium of the company’s share price, and nothing as good ever came along again. I suspect most shareholders, no matter how grumpy, will accept the Verizon offer. Having been burned before by holding out for more, it’s likely everyone will just take the money this time round.
Meyer’s appointment four years ago offered a glimmer of hope, and she made some very good acquisitions - notably the $1.1bn Tumblr deal - but Yahoo’s problem was that it never knew what do with the properties it had bought.
Verizon should be different as it knows exactly what it has bought. Ironically, the biggest criticism of Yahoo in recent years is that, as an internet legacy business, nobody quite knew what it was for - unlike Facebook, Google, Apple or even Microsoft. And Verizon appears to know exactly what to do with it: and that is to gain traction in the highly profitable and still-growing world of online - and more specifically mobile advertising.
The takeover is due for completion (subject to regulatory approval) next year, and will see Verizon going some way towards achieving its ambition of becoming a truly global company. It is huge in the US, but almost unknown in Europe and the APAC region.
Unlike AOL, which it bought for its programmatic advertising technology, Verizon will be interested in Yahoo’s content (such as Yahoo Finance and Sports, and its news service) and its brands (particularly Tumblr, which is popular among the so-called millennial generation, and Flickr, still the world’s most popular photo site outside of Facebook). It also gets 600 million regular monthly users (plus another 400 million or so lapsed or infrequent ones) and the data that comes with them, as well as an email service. And, astonishingly, according to ComScore, a merged AOL-Yahoo combined would make it the largest media business in the US.
Yahoo has never really known what kind of company it wants to be and thus of itself isn’t particularly attractive to a buyer, but it’s one of those companies which my colleagues and I have written about this many times before on The Drum whose parts are worth much more than its sum.
“It’s a beautiful example of a company that has a lot of indispensable pieces, but they don’t add up to an indispensable whole,” Rita McGrath, professor of management at Columbia Business School, told online magazine Slate recently.
And many the pieces will be indispensable to Verizon. The company already has an extensive wireless and “fibre” (cable TV and landline internet) network, and plenty of data, and a good set of content-led brands such as TechCrunch and the Huffington Post. Providing it can make a better fist of integrating its businesses than Yahoo has done, then it is on to a very good thing.
Whether or not it can take on the likes of Google and Facebook is another matter. The newly-enlarged Verizon could have up to a billion users, but this on its own may not be enough. Verizon does have one thing going for it, however, and that’s a robust mobile infrastructure and around 113 million subscribers. If it is going to decide that distributing content and monetising it by selling advertising around that content, then that mobile network could prove priceless. According to The Wall Street Journal this week, the mobile ad market could be worth £180bn a year by 2020, so there is everything to play for.
And given that there are rumblings of discontent within the advertiser community about the size and power of both Google and Facebook, a new entrant to the market is likely to be welcomed and even embraced. Because it owns infrastructure, Verizon’s data may also be more granular than that of its rivals, offering advertisers to target their ad messages with much more precision.
“Yahoo brings viewers. Viewers bring advertising. Advertising brings top-line growth,” said Verizon chief financial officer Fran Shammo when the deal was announced on Monday.
Given that there is a limit to how far one can grow a mobile network through subscribers; and that traditional cable networks and landline internet usage in the US are in decline; and that consumption of content, particularly among the young, is increasingly moving onto mobile devices, Verizon’s $5bn gamble could be the best thing it has ever done. What it needs to do now, unlike the company it has just bought, is stay focused.
Andrew Moss is a partner at Green Square, corporate finance advisors to the media and marketing sector
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