Yesterday, news started circulating that Federated Media Publishing hired Savvian, a boutique San Francisco investment bank, to shop around the blog ad network to potential buyers. This action was taken after FM Publishing was approached by several investors. One investor, we have learned, put a $100 million buyout offer on the table for the entire company, which FM Publishing declined.
FM’s founder and CEO John Battelle has been down this road before. When he was running the Industry Standard during the dotcom boom, he got at least three firm offers to buy the budding media property, culminating in an offer for $750 million. Owning a small stake in the company, Battelle strongly urged controlling shareholder Pat McGovern, chairman of IDG, to take the deal. In Battelle’s own account, he recalls:
I tried for all of 2000 to get Mr. McGovern to let us sell the company to a stronger buyer, one who believed in our vision of the Internet Economy. He refused, and pushed us to go public instead. It was this very conflict that led to our differences and, partially, to our demise. I had three very real offers on the table that I took to McGovern, and three times he refused them, telling me that instead, we’d make more taking the company public or, at the very least, telling the potential buyer to double the price. Given that the price was between $250mm and $750mm, such a response was, to my mind, nonsensical. But he owned the majority of the shares, and his word was what mattered.
Now that Battelle is the controlling shareholder, you’d think he would be careful not to repeat that mistake again. He must be pretty confident that he can get more than $100 million for FM. (I was unable to reach him for a comment before posting this). Other investors from its $4.5 million A round two years ago include JPMorgan Partners, The Omidyar Network, The New York Times, Mitchell Kapor, Andrew Anker, Mike Homer, and Tim O’Reilly.
(Disclosure: FM Publishing controls a portion of the ad inventory on many blogs and social media sites, including TechCrunch.).
“One investor, we have learned, put a $100 million offer on the table, which FM Publishing declined.”
A little confusing.
Was the 100M the valuation for an investment or an acquisition offer? (since “investors” in this context don’t typically do acquisitions)
I second Zaid’s question, which is an important one, since in this market investors buying chunks of companies are regularly paying significantly higher valuations than complete buyers are. Of course that doesn’t make a lot of sense, but it’s the result of too much PE money.
This sounds like complete hype. There is no way FM is worth that much.
Am I missing something here? FM Publishing doesn’t have its own technology it uses OpenAds.org as its ad serving engine.
If the money is not for the technology IP, then is the value solely for number of customers (RWW, TC, Mashable etc) and the number of advertisers. If that is the case, what is the revenue of FM and therefore the investment multiple?
If someone really did offer Battelle $100-million, he should take the money in a flash. Unless FM is doing extremely well, that kind of money for a blog advertising middleman seems outrageous.
I don’t understand why a blog like Tech Crunch needs Federated Media. If anything Federated Media needs them. People need to cut out the middlemen and build there own empires, run your own Publishing company across your own network and milk that cash cow.
FM makes sense for no name Joe’s, but for established brands I don’t see logic.
WOW … thats a lot for FM to just turn down!
Turning down the $100 million is either going to make John look incredibly stupid or incredibly smart.
I agree with all the comments above. It certainly seems our beloved Tech Crunch is hiping up a rumor to help FM. That’s sad and soon makes the readers lose respect.
The $100 million is a buyout offer. I updated in the post to clarify.
@Coryne, I am not advocating or recommending that someone buy FM. I could really care less. It doesn’t help TechCrunch one way or the other. I do know that $100 million was offered. And that’s news regardless of our affiliation.
Would you rather that I keep these things to myself?
Battelle must have taken a look at what he would net, guessing 35 mil. Minus taxes he is left with 20 mil. and an outdated blog template and the ability to drop names at his liberal Marin County tea parties.
Not much for the ideas he has I reckon. BTW, greed kills.
Companies like Federated, Gorilla Nation, Tribal Fusion etc are the future of online advertising and 100M isn’t much when you consider that google pulls in several BILLION a year on adwords alone, and it’s a sinking ship.
Why is this important? Because brand advertisers are using adwords less and less because they are:
a) ugly
b) not effective for brand advertising
c) prone to clickfraud/sloppy reporting by google
d) expensive (.05/click bottom price)
Google’s algorithms can’t target ads like an account manager and well carved out verticals.
People are tired of adwords and webmasters are tired of google. Remember that google doesn’t control the internet, webmasters do. If you think google is too strong to be overthrown, take a look at how webmasters revolted against internet explorer and covered the web with “download firefox” badges.
FM has a good path, credibility and have proven their business model. They have carved out their niche pretty well and i’d put their valuation in the 250-400M range, especially if we’re talking acquisition by someone like Google, who desperately needs company like FM before the bottom completely drops out of adwords.
You would think this industry will start consilidating i would take it and start a new venture
yupnup.com
What is a boutique investment bank? How does it differ from a regular investment bank?
@12: “Remember that google doesn’t control the internet, webmasters do. If you think google is too strong to be overthrown, take a look at how webmasters revolted against internet explorer and covered the web with “download firefox” badges.”
Right. And the revenues of both companies are obviously suffering because of the backlash.
Consumer advertising is all about reaching huge volumes of potential customers, and all the niche sites are just that — niches. Not that they don’t have value, but their following is a nano-fraction to the eyeballs that google/search and microsoft/ie get, so they’ll never command the ad dollars that the big boys can deliver.
Fragmentation of the web advertising market, at the expense of goog and msft, is a pipe dream.
@15: “Right. And the revenues of both companies are obviously suffering because of the backlash.”
FYI, this is intended as sarcasm. I marked up my comment with some invalid characters, my bad.
FatBoy makes a valid point. They are only a rep firm. A REP firm! They do not own their own tech nor have any proprietary stronghold on their market share. That means that the only intrinsic value they have is the contracts they have in place to sell ad space. And if you believe for one moment that a contract with an Ad Network is a lock than I have a few dozen sites to sell you. In other words its not hard to get a publisher to switch ad networks, just offer them more money.
This valuation is absurd by every measure. There are only a finite number of advertisers of any significant value interested in spending money on Blogs. Google is successful because it allows for any advertiser no matter how big or small to reach their customers when their customers are LOOKING for them. It allows for control over the ads, their cost and their placement. Display ads on a network does not.
That is the reality of this business that no one talks about when they talk valuation of online ad companies.
My advice is to take the money now, as this economic downturn hits the markets the number of ad dollars are going to shrink not increase you” find more and more of these rep firms clambering for a buyout and a pay day.
In another TC post
techcrunch.com/2007/03/07/federated-media-raising-more-money-looking-to-sell/:
“The company, which sells advertising for a number of blogs and other websites (including TechCrunch), had revenues of $4.5 million in 2006, its first year in operation. Projections for 2007 were $30 million in sales and “several million dollars” in profit.”
John, I don’t know what your financial situation is for the ttm, but If you are not making at least $10M in profits and was offered $100M for the company…take the money and run…
his karma up ’til now was to start and lose
his ego may not let him sell, karma continues
make a great tv program
@Jro, youre missing the point. FM can sell high CPMs and companies will pay for it because its not dummy traffic.
If you owned a software company, would you rather pay $10CPM on techcrunch or $.50CPM with Google? Which user is more attractive to you?
In advertising there are factors that supercede volume (as a matter of fact, high volume sites have the lowest CPMs and some are almost impossible to sell, like social networking sites, so they run adsense.
Do you want your software ad showing up on a kids myspace page because he says he’s “looking for software to create manga animation”?
No probably not. You’d probably rather that someone who actually has a say in which software/hardware their company buys sees your ads.
Your explanation of googles business model (large AND small advertisers!) was much appreciated for this crowd that probably has no idea how it works.
In other words, I guess you’re saying that there’s only room for one type of product and one type of product works for everyone.
You’ve got a bright business career ahead of you kid.
@Jro….you got pimp slapped way back into a 70’s superfly film..maybe your mom can bring you some campbells soup down to your basement so you can feel better…
I Agree with @18 , he should take the money and run.. !!
IMHO, for the VC the Risk of loss s/be approx 30% and Causation of major risk near to the 50% watermark.. Its just to early for an exit.
and frankly $100Million buyout offer for FM its way too much at this stage !!
AndyFox, congrats for writing some of the dumbest comments ever to appear on this site. Kudos.
Traditionally adnetworks sell for 2-3 revenues. This is obviously a rumor FM is circulating in order to drum up interest in a sale.
My money’s on Omidyar. He’s got the bucks and he’s bored with having his mother dress him.
@20: I never claimed there’s only room for one product and one product works for everyone. Only that rolling all the FMs of the world together still isn’t making a dent in Google’s business, because the volume is significant and that volume translates to revenue.
But I guess I’m not smart enough to understand the difference between price vs. sales.
I agree that Federated cannot be worth anything close to $100M. I agree that this may be part of a VC deal. Investors dont buy companies like Federated. What are they buying? A wobbly customer base? An open source ad server?
No way they’ve had a 100 million dollar offer. They’re a rep firm so the value would be at most a small multiple of earnings. They’d have to be doing 25 milllion bottom line at least to be worth 100 as a rep firm. And youre saying they turned down 100? No way. Dont believe it. Not unless their publisher agreements are 24 month exclusives. Even then your publishers are out after 2 yrs, so what are you getting? I dont see what the asset is here.
Doesn’t it depend on how much money they’re making also? How can anyone say what it’s value is without opening the books for themselves?
I’ve heard from the inside that things aren’t going well and that they were all shell-shocked after the MSN/DIGG deal. Battelle tried to spin it as a “plus” for FM but it was a sign of gloomy days ahead. They don’t have a single defensive bone in their bodies. I don’t think they’ll get a penny over 2.5x revenue — whatever that revenue is.
Boom shaka laka! 100M not enough for FM? Who’s kidding whom?
For a dime a dozen blog advertising network with technology that your 13 old kid brother is also trying out? Lost for words. Again.
Thanks Techcrunch for bringing these valuations to our attention. They really do bring perspective.
And one more thing. You don’t go to Savvian if you think your company is worth 100M. You go to CSFB, Goldman Sachs, etc, bulge bracket, big league names.
This story confirms that TechCrunch’s motto is, “When the legend becomes fact, print the legend.”
His shopping around may just be a tactic to get the existing bidder to increase his price to stop JB from shopping it.
I think FM is work $1B just like MySQL. Throw in a Napa winery or two and you have a deal boys!