M&A Alert - May 28, 2010
Yahoo! Buys Associated Content
Transaction Overview
On May 18, 2010, Yahoo! Inc. (NASDAQ:YHOO) announced that it has agreed to acquire Associated Content for approximately $100 million.
Target Description
Associated Content (“AC”) publishes topical content across a number of subject areas on their own websites as well as offers third party publishers access to their content. AC utilizes over 280,000 independent writers and contributors to create the content who are paid between $2 – $15 per article and receive $1.50-$2.00 per thousand page views. AC guides its contributors by providing visibility on what content is in demand by tracking trending topics. AC attracts viewers to its sites via sophisticated search engine optimization techniques that allow their sites and content to rank highly in queries via search engines such as Google, Yahoo and Bing. Monetization is via sales of performance oriented advertising. AC offers targeting services allowing advertisers to segment audience by industry, article, topic, keyword, time of day and geography. AC claims a total of 2 million articles on over 60,000 topics and 59 content categories. AC reports 16 million unique users per month and 80 million monthly page views. AC’s advertisers include Toyota, ABC, P&G and Ace Hardware. AC offers its content to major publishers such as Thomson Reuters, Cox Newspapers, Hachette Filipacchi and USA Today. Competitors include AOL-launched SEED and Demand Media, who reportedly plans an IPO this summer, as well as recently acquired Tsavo Media. Founded in 2004, New York-based AOL has received $21mm in total funding from Canaan Partners (Warren Lee), Softbank Capital and AOL’s CEO, Tim Armstrong. AC’s CEO, Patrick Keane (who was previously head of Google’s advertising sales strategy) is to join Yahoo! after the acquisition.
Buyer Description
Yahoo! Inc. (NASDAQ: YHOO) provides Internet services to users, advertisers and developers. Yahoo! has the large online content offerings with their sites such as Yahoo! News, Yahoo! Sports and Yahoo! Finance. Yahoo! also offers search and display advertising services and other online connectivity services including Yahoo! Mobile and Yahoo! Digital Home and online communities including Yahoo! Mail, Yahoo! 360, Yahoo! Messenger and Flickr. Matt Idema, VP Local, was the key executive sponsor of the deal.
Transaction Parameters
Yahoo! reportedly has agreed to a purchase price of between $90-$100 million for Associated Content. Financial parameters of Associated Content have not been disclosed.
Strategic Rationale
Yahoo! is an online publisher who drives revenue by selling advertisers access to specifically targeted consumers. Associated Content brings Yahoo! a way to inexpensively produce topical content, significantly expand their owned advertising inventory and brings millions of on-line consumers.
Associated Content, while having some unique elements, is consistent with Yahoo!’s recent acquisition strategy focused on acquiring topic specific content companies including totaltravel.com (an online travel site company), maktoob.com (an Arabic online community) and Citizen Sports (a sports-oriented content company).
Architect Partners’ Observations
Associated Content brings a different content creation strategy than Yahoo!’s historical approach. AC has been one of the pioneers by harnessing independent contractors and paying them only for their contributions.
Some have been critical of how AC’s content fits with Yahoo!’s legacy of premium content. With careful execution and branding, we believe that AC can be an important contributor to Yahoo!’s advertising inventory and revenue. It will also allow Yahoo! to experiment with alternative content creation models (i.e. lower cost) without putting it’s core brand at risk. See our M&A Alert on the recently announced Tsavo acquisition as well.