It's been a while since we've seen multiple deals in the content and technology space on the same day. I don't want to get ahead of myself, but perhaps this is a sign that the M&A market may soon heat up a bit.
Three deals were announced yesterday. The big one was Amazon's acquisition of Zappo's. Earlier in the day we also saw Roll Call (the Economist) acquiring Congressional Quarterly, while private equity firm Apax Partners took out Bankrate.
The Amazon - Zappos deal seems to be a no-brainer. Reports indicate that Zappos CEO Tony Hsieh (@Zappos) was in no rush to sell, but was pressured to do so by their investors. A price of roughly 1x revenues is a bargain for a growth engine like Zappos. It seems to be a great fit. Zappos is known for its amazing corporate culture and its fantastic customer service and has been called the "Amazon of shoes". Amazon, of course, has the infrastructure, processes and scale to handle ecommerce at a tremendous scale. If Amazon can scale Zappos without damaging its customer service capabilities, that will be a huge win.
And while Amazon immediately becomes the dominant player in online footwear, I think the company will be able to extend Zappos' success into other soft goods, such as clothing, where Amazon has made some inroads but has only on a limited basis. Zappos has been able to get consumers to buy shoes online (where fit and comfort are key); it would seem other clothing items might be easier. That said, one challenge Zappos has faced is the huge number of returns. They have encouraged users to order multiple pairs of shoes, keeping the ones that fit best. While Amazon's logistics infrastructure can minimize the expense of shipping shoes back and forth, it seems that the "order two pairs and send one back" model is not sustainable in the long run.
I thought that Roll Call's purchase of CQ was also a terrific deal. And while the print media business has been under tremendous pressure, CQ is in one of the few growth spots in the industry. While deal terms were not announced, pre-announcement rumors were in the $100M range. While there's certainly overlap between the two companies, it's good to see CQ find a strong parent in the Economist. I'll be sorry to see CQ CEO Bob Merry step down, though. He's done a terrific job leading the company.
The Apax - Bankrate (NASD:RATE) deal struck me as a bit of a surprise. The $28.50 price, a 15% premium over the prior closing price, seems a bit rich for the current environment. Obviously, Bankrate has been hit hard by this economy. While the entire online advertising market has taken a big hit, that has been compounded for Bankrate, whose lead gen and advertising businesses are centered around home and auto financing. According to the 10K, Q2 revenues dropped to $31M from $40.2M a year ago, while net income plunged from $4.1M to $1.9M for the period. While I can see Apax viewing this as buying at the bottom, I think there are pure-play online media businesses in more attractive markets out there right now. I believe that the online ad market will be an early winner when the economy does come back, but banking and automotive will continue to drag for quite a while.
