I N DEPEN DENT I NVESTMENT BAN KI NG FOR MEDIA, INFORMATION, MARKETING, TECHNOLOGY & HEALTHCARE

Client Briefing November 2013

since 1987

The 7th annual Outsell Signature Event – with the apropos title “The New Normal” – brought together more than 150 senior executives and thought leaders from across the global information industry for three days of networking, learning and sharing ideas.

Held October 2-4 at the newly opened Salamander Resort & Spa in Middleburg, VA, this collaborative effort between Outsell, a leading research firm for the information industry, and The Jordan, Edmiston Group, Inc. (JEGI), a leading provider of investment banking services to the information industry, creates an environment where global information industry executives can retool and enhance their perspectives on the industry and their marketplaces.

This peer-to-peer, by-invitation-only conference was highlighted by an impressive line-up of speakers, including industry executives and thought leaders, such as: Dr. Nido Qubein, President, High Point University; Sara Greenstein, President, UL Environment, Underwriters Laboratories; Sonny Vu, CEO & Chairman, Misfits Wearables; Stephen Smith, President & CEO, John Wiley & Sons; JP Rangaswami, Chief Scientist, Salesforce.com; and more.

The conference opened with “on the record” presentations from Outsell, JEGI, and Parthenon Group, providing an outlook on the 2014 economy and M&A markets, along with key trends likely to impact the information industry in the years ahead. Excerpts from these presentations follow.

Information Industry Outlook 2014Leigh Watson Healy, Chief Analyst, Outsell, Inc.

The information industry is a $721 billion annual market. This total reflects the continued growth of this rapidly evolving marketplace, as well as Outsell’s expanded coverage of the industry, as the worlds of media, information, and technology converge. This market is increasingly focused on applications and workflow, and certain emerging areas (e.g., those in human capital management, health information and IT, marketing services and automation, education technology, and governance, risk, and compliance) are expected to outpace the information industry’s overall growth rate over the next few years. Search, aggregation, human resource, and credit information currently outpace the growth rates of more traditional segments. (continued on page 7)

2013 Outsell Signature Event – The New Normal

(from left) Jerry Thompson, Founder, White Sky; Amir Akhavan, Director, JEGI; Ramsey McGrory, Advisor, AddThis; and Tom Stewart, Chief Marketing & Knowledge Officer, Booz & Co.

1 > for more information visit www.jegi.com

In This Issue• 2013 Outsell Signature Event • Information Industry Outlook 2014 • JEGI Q3 2013 M&A

• Marketing & Media Ecosystem • Technology Transformations

• Economic Outlook

• Exceptional Transaction Experience

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Follow JEGI on Twitter: http://twitter.com/JordanEdmiston

(from left) Ragy Thomas, Founder & CEO, Sprinklr; David Segura, Founder & CEO, Giant Media; Wilma Jordan, Founder & CEO, JEGI; Matt Egol, Partner, Booz & Co.; Greg Springs, Principal, Booz & Co.; Patrick Hounsell, Chief Digital Officer, Merkle; and David Moore, Chairman & CEO, 24/7 Media

JEGI November 2013Emerging Company Dinner

JEGI November 2013 Emerging Company Dinner

2 3

Mergers and acquisitions in the media, information, marketing and technology sectors during the first three quarters of 2013 saw 1,057 transactions announced at a total value of $67.5 billion. The $21.9 billion Publicis/Omnicom merger drove total deal value up, and without that blockbuster announcement, 2013 YTD deal value decreased 23% on roughly the same volume of transactions as the prior year.

Smaller deals by strategic company acquirers dominated, with 93% of transactions under $100 million in value, and strategic acquirers accounting for 84% of announced transactions. Strategics are actively acquiring in order to transform business models, fill holes in capabilities, services and product lines, and enter new markets.

average deal size

2013 has seen 11 deals with $1+ billion in value, with five deals coming in Q3; this compares to eight deals through Q3 2012. However, as presented by JEGI CEO Wilma Jordan at Outsell’s 2013 Signature Event, average deal size in 2013 decreased compared to 2012 levels. Companies lack the confidence in today’s business environment to consummate sizeable transactions, which in many cases are needed for business transformation, especially now.

Through the third quarter of 2013, average deal size was $43.2 million (not including the $21.9 billion Publicis/Omnicom merger), down from $52.3 million during the same period in 2012. For the other deals over $1 billion, average deal size dropped 44.1% to $1.66 billion this year. Declining by 2.4%, average deal size for those between $100 and $999 million was $280 million, compared to $287 million in 2012. For deals under $100 million, average deal size remained flat at $13 million.

Ms. Jordan’s complete Outsell presentation is available here: http://bit.ly/GByBOY.

large transactions

$1+ billion transactions through Q3 2013 include the:

• $21.9 billion merger of Publicis Groupe and Omnicom Group to create the largest global ad agency (by revenue);

•BC Partners acquisition of a majority stake in academic publisher Springer Science & Business Media for $4.4 billion;

• Salesforce.com acquisition of ExactTarget, a provider of cross-channel digital marketing SaaS solutions, for $2.25 billion;

•Baidu acquisition of 91 Wireless Websoft, a major developer of app stores in China, for $1.8 billion;

• IHS acquisition of R.L. Polk & Co., a provider of automotive intelligence and marketing solutions, for $1.4 billion;

•Google acquisition of Waze, a social mobile application that enables drivers to build and use real-time road intelligence on smartphones, for $1.3 billion;

• Funke Mediengruppe acquisition of regional newspapers, TV program guides and women’s magazines from Axel Springer for $1.2 billion;

•Kohlberg Kravis Roberts acquisition of Mitchell International, a provider of information solutions to the insurance and collision repair industries, for $1.1 billion;

• Yahoo acquisition of Tumblr, an online platform that enables users to share text, photos, quotes, links, music, and videos across any channel, for $1.1 billion;

• SAP acquisition of Hybris, a vendor of multi-channel communication and commerce software solutions, for over $1.0 billion, according to The Wall Street Journal; and

•Roper Industries acquisition of Managed Healthcare Associates, a provider of pharmacy solutions and data analytics for long-term care and other healthcare providers, for $1.0 billion.

(continued on page 6)

JEGI Q3 2013 M&A – Smaller Strategic Transactions Driving M&A ActivityMatt Egol and Greg Springs, Booz & Co. Nearly 20 years into the digital revolution, innovation continues at an unprecedented and accelerating pace. Whereas television took 13 years to reach 50 million users, Facebook took little more than three, while some leading mobile apps often reach this milestone in a matter of months.fundamental shift in the marketing modelThe explosive growth of digital has driven a fundamental shift in the marketing model. It is not enough for players in the marketing and media ecosystem to develop award-winning ad campaigns with social and mobile integration. The new marketing model requires brands to be publishers themselves and to curate experiences along the path to purchase. They must also master a new repertoire for content marketing, social listening, e-commerce, and real-time, locally targeted advertising at scale.major trends raising stakesSeveral major trends are raising the stakes for players in the marketing and media ecosystem in making strategic choices for how to build, partner or buy new capabilities:1. Retailers and brands are increasingly investing in their own media, leveraging the audiences that they are building to better understand their consumers via advanced analytics and ongoing test-and-learn programs.2. Brands and retailers are shifting marketing spending toward more activation-focused programs, embedding “snackable” content (including video) in ads, in mobile experiences, and driving its distribution through social media.3. Availability of a broader array of data sets is opening up new opportunities for better targeting media, as well as optimizing real-time consumer experiences (e.g., next best offer, assortment, content serving, etc.).4. Leading marketers are adopting a “mobile first” philosophy emphasizing a need to reach consumers via smartphones or tablets, as part of an omni-channel experience from the couch to the shelf.trends driving value migrationThese trends are driving value migration along one of two vectors, as shown in the chart above. First, ad-supported media and bespoke agency services for creating relevant content and advertising to engage consumers on their path to purchase are moving toward more scalable platforms. Second, they are driving value migration from creative services models towards new models powered by deeper analytics. Content and creativity still matter, but the way they create value in the new marketing model is under pressure, given the challenges that labor-driven, legacy business models face in the complex integration across a multi-player ecosystem and across silos within their own operations.

investing in marketing servicesAd-supported media companies, in particular print media companies, have responded to erosion of their advertising revenue by investing in marketing services businesses. The big agency holding companies have also stepped up their M&A activity to acquire companies across new and emerging markets. Often, however, this is just a shift within the bottom left quadrant and not a more transformational shift up or to the right in the value migration chart.disruption fueling value migrationDisruption is occurring in the other quadrants outside the

bottom left, fueling value migration, as earlier stage companies introduce more technology-enabled business models, which enable greater scalability and precision in marketing. This has fueled a target-rich environment for incumbents to buy innovation at higher multiples, while also forcing marketers to tap into a broader ecosystem of vendors to build out winning capabilities.The players driving disruption generally cluster into one of three groups. In the top left quadrant are companies whose primary value proposition is to serve as scalable activation platforms, while still offering a fair degree of customized service (e.g., Triad Retail Media for content and ad integration on retailer web sites;

SheSpeaks for word-of-mouth marketing programs; etc.). Players in the bottom right quadrant provide a scalable approach for syndication of high value, “snackable” content, while also enabling deeper insights from mining social sentiment and users’ online behavior (e.g., Bazaarvoice for ratings and reviews; ShopLocal for digital circulars; etc.). Companies in the top right quadrant combine elements of each of the other vectors, powering analytics solutions enabling greater precision and scalability for unlocking value from content and data (e.g., RichRelevance for optimizing engagement on retailers’ digital assets; Google for optimizing offers targeted to retailers’ shoppers; etc.).where to invest for growthFor strategic players, like media companies or agencies, the key question is where to invest to address key gaps in their capabilities and build both greater customer value and more scalable business models. This will require not only a better strategic filter for M&A, but sustained commitment to change their companies’ operating models and evolve their cultures. For financial buyers, the key questions are where to focus investment and what targets offer the best platforms on which to drive further innovation. nAbout the AuthorsMatt Egol is a partner with Booz & Co. with more than 15 years of experience consulting to consumer products, retail, media and marketing services clients. Greg Springs is a principal who specializes in digital transformation for media and other players in the marketing services ecosystem.

Value Migration in the Marketing & Media Ecosystem

source: jegi transaction database

93%

Under $100Million Value

6%

$1+ Billion Value1%

$100-999 Million Value

M&A Deals by Size, Thru Q3 2013

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Daniel Avrutsky, Managing Director & Global Head of Technology, JEGI

It is no secret that the past 10 years have witnessed an astonishing change in how we use technology for both the enterprise and the consumer. This transformation appears rapid and immense today (no Facebook before 2004, no Hadoop before 2005, no iPhone before 2007!), but we predict a much larger wave of innovation yet to come - not in 20 years, but over the next five.

The purpose of this article is to recap the phenomena that will enable the next wave of massive breakthroughs - the data revolution, a secular shift in how we generate, analyze and use data that will become the story of the next decade. Stay tuned!

1. virtualization makes cloud. Modern servers leverage the substantial computing power of latest generation processors to simultaneously run large numbers of so-called virtual machines (VMs) on a single hardware device. Virtualization becomes mainstream when a little known company called VMware goes public in the summer of 2007, reaching a $19 billion valuation on the first day of trading.

Wide adoption of virtualization tech-nologies in computing, data storage and networking not only enable hardware savings measured in multiple orders of magnitude for enterprise purchasers, but also lead to a sea change in how technology is consumed and managed, a powerful weather phenomenon known as Cloud.

2. open source makes cloud cheaper. Due to the standardization of open source technologies and the proliferation of open source services firms (Red Hat, Cloudera), enterprises of all sizes and types increasingly embrace this non-proprietary paradigm for everything from the operating system (Linux) to databases (MySQL) to data warehousing and business intelligence (Hadoop).

The trend adds to the significant efficiencies enabled by virtualization, and further accelerates the advent of the cloud-based technology enterprise.

3. cloud drives innovation... Leveraging breakthroughs in virtualization, open source and information security, public cloud providers such as Amazon AWS, Microsoft Azure and Rackspace, deliver on-demand pay-as-you-go virtual computing and storage at a fraction of its historical cost. Upfront technology investment barriers for enterprises, SMBs and start-ups collapse, contributing to a wave of innovation in all areas, not just in software development.

A professor of computational biology at a major US university tells us that buying the processing power to model next generation drug molecules would have required a $5 million grant 10 years ago. Today, Amazon AWS provides a much higher capacity securely and reliably for $500 per month and no upfront cost!

4. ...and creates power shift from suppliers to buyers, leading to consolidation. As CPUs move en masse from corporate departments to private and public clouds (nearly half of Intel server CPUs now reside in the cloud), purchasing decisions lie in the hands of a few powerful CIOs, running multi-billion-dollar pillars (or stacks) of computing infrastructure. To balance the power of these mega-buyers and maintain relevance and margins, the technology majors have to rapidly consolidate, leading to a wave of M&A that blurs the line between hardware, software, networking and storage.

Traditional data center vendors, such as IBM and HP, are joined by the likes of Oracle (formerly a software company), Cisco (formerly a networking company) and EMC (formerly a storage company) in the battle for the cloud. Other large technology vendors, such as Microsoft, lacking major components of the stack and lagging behind, shift focus toward becoming cloud service providers, essentially switching sides.

5. user device transforms to thin client (or not?) Every user-facing computing device, whether desktop, smartphone, game console, or smart

glasses, is on its way to becoming a thin (dull) shell, delivering pixels and sound, while enabling user authentication and data capture. Nearly all computing and storage shift to the VMs in the data center. For example, the brand new headquarters of a major NYC-based corporation, which used to spend hundreds of millions of dollars on end-user hardware 10 years ago, now has virtually no desktops.

Does this mark the end of the smart end user device at the enterprise? Not so soon. Breakthroughs in mobile technology, location-based services and wearable com-puting breathe new life into these devices, enabling a previously unimaginable degree of collaboration and interactivity. And so, the device is dead...long live the device!

Top 10 Technology Transformations of the Last Decade6. everything becomes something-as-a-service. Centralization of computing, reminiscent of centralization of power utilities in the early 20th century, enables delivery of utility-based (vs. on-premise license-based) computing by the newly created breed of Software-as-a-Service (SaaS) firms, such as Salesforce.com, NetSuite, Concur and others.Even basic computing infrastructure is not immune to becoming a service. As VMware’s recent acquisition of Desktone (provider of desktop-as-a-service) exem-plifies, the most basic user gadget, a desktop, now turns into a 3rd-party service, further reducing barriers to mass-availability of latest generation technology, device management and security. 7. platforms become markets. Develop-ment environments or platforms also

become services (PaaS), as large B2B and B2C software vendors open up their development frameworks and technology infrastructure to independent 3rd party application producers, in part to tap into the innovative juices of these start-ups, and in part to leverage the investment in their new private clouds.

What’s more important than the tech-nology is the revolutionary new business model that PaaS enable. Large vendors become marketplaces, connecting develop-ers with unprecedented numbers of corporate and private customers, while taking a cut in the value created through application exchanges. Highly competitive, yet often lucrative, marketplaces, created by the likes of Apple (yes, also a SaaS company) or Salesforce.com, lead to a gold rush in application development, becoming the foundation of the Web 2.0.

8. f ixed plus mobile equals ubiquity. The combination of mighty fixed cloud infrastructure on the one side, and agile mobile technology on the other, create a perfect storm. It is perhaps paradoxical that as computing and applications move deeper and deeper into the concrete data centers, users move further and further from the brick and mortar of their homes and workplaces, as they remotely consume increasing amounts of computing firepower.

In the new paradigm, centralization of computing extended by mobility breeds ubiquity. As digital consumers increase their exposure to the outside world, with a thin and elegant (yet pretty dull, from a processing standpoint) device in hand, the barriers to technology-enabled interactions and information exchanges fall across social activity, work and commerce. We begin to create, consume and exchange exponentially growing amounts of unstructured (big) data, which at the end, and oh so ironically, settles back into the humming rows of immovable server racks.9. social media enables real-time feedback and personalization. Historically, enterprises have been able

to fairly efficiently collect and process real-time transactional, product and B2B client data with the use of various enterprise applications. Until recently, however, obtaining and analyzing usable (i.e., statistically significant) amounts of B2C data has been challenging and largely the domain of professional marketers. Luckily, our desire as individuals to self-expose, in the context of “trusted” social interactions, is fundamentally changing how brands are able to analyze consumer behaviors.

Essentially, for the first time in history, consumer feedback can be gathered and the interactions personalized on large scale and in real time. At least, that’s the theory. In practice, deriving actionable intelligence out of massive unstructured data streams produced by untamed global consumers requires far more than the processing power of our collective cloud. Hence lies the opportunity.

10. what’s next: big data big problem big opportunity. Myriads of blogging entries, tweets (1 billion every 48 hours), photographs and video files created daily by the multi-billion strong global data entry force do not fit neatly into centralized relational databases and are not easily subjected to SQL queries. Yet there is a wealth of information and, ultimately, insights hidden in the seemingly infinite haystack of Big Data.

Luckily, technologies, new (algorithmic unstructured data analytics and visualization) and relatively old (semantic analysis, BI), are increasingly available to brands, agencies, financial services firms, telcos, government and other consumers of technology, eager to make sense of it all.

If the secular shift in infrastructure and application technology is entering maturity, at least in its current form, we are only seeing the beginnings of the new data paradigm. And, as infrastructure and traditional enterprise applications commoditize, the data, in its various “real- time”, “tech-enabled” and “SaaS-ed” forms, become the focal point of the next wave of the technology evolution. n

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(continued from page 2) looking ahead We expect the M&A market to continue to be dominated by small strategic transactions, due to the uncertain environment in the US caused by political gridlock, a sluggish economy, and the implementation of Obamacare and numerous other government regulations.

Larger transactions will likely focus on aggregation and consolidation among mature or legacy companies (for example, Publicis/Omnicom; Nielsen/Arbitron; Gannett/Belo; Dentsu/Aegis), due to the low growth economy, coupled

with rapid technological changes, with most management teams and boards of directors somewhat reluctant to pursue significant transformative deals.

Technology will continue to challenge existing company models. For instance, consider how Angie’s List and Yelp are

affecting the yellow pages industry; how LinkedIn is challenging traditional job boards; and how proliferating Internet news sources are strongly competing against the traditional news industry.

Additionally, marketing automation will accelerate and continue to remake the marketing services landscape. This leads us to wonder which company will be the global advertising and marketing agency of the future – WPP, Publicis/Omnicom, Dentsu? Or, Accenture, Adobe, IBM? It will be interesting to see how the marketing and technology companies continue to intersect going forward. n

JEGI Q3 2013 M&A (continued)(continued from page 1)

content and software converge

The convergence of con-tent and software is now driving the industry. Neither content nor soft-ware is king – it is their unique combination in all sectors that ensures well-differentiated solutions, as more money flows to digital.

hot topics

• Money Flows – Money flows are quickly changing, resulting from the altering buying patterns of enterprises, whether they are investing in paid content for use by their knowledge workers or, as advertisers, shifting their marketing spend to new modes and venues. This also includes creating and monetizing communities using e-commerce and solutions other than traditional advertising.

• Talent – Shortages of talent are expected to continue, especially in “hot” and emerging areas of the information industry landscape. For example, there is a large and growing talent gap around big data and the analysis of this data.

• Product Development – Philosophies around product development are expect-ed to continue evolving in line with a rapidly transforming and competitive marketplace (i.e., products developed by users; agile development; community development; etc.), where time to market is critical and capital is scarce.

• Privacy & Security – At the center of this activity is an ongoing discussion around privacy, copyright, data protection, and cybersecurity, as government regulation and re-regulation puts pressure on industry groups and associations, whose historical roots weaken its ability to respond to this “converging” world.

new partners

Industry leaders like Reed Elsevier, Wolters Kluwer, Thomson Reuters, McGraw Hill Financial, Pearson, Moody’s, Verisk, IHS,

and many others are now partnering and competing with the likes of Oracle, IBM, and Deloitte or SAP. Google, Facebook, Amazon, Yahoo!, and Twitter are the new “broadcast,” and growth in the new normal is now fully underway.

trends that matter

Notable trends to watch include the following (more will be shared in Outsell’s annual Information Industry Outlook report, to be published in December):

• Marketing, Media & Analytics – Digital marketing has created an environment where the focus is all analytics all the time. Marketing automation and analytics firms squarely focus on the CMO’s desktop and getting platforms or dashboards in place. Pull marketing (generating leads by promoting brand loyalty) is incubating and is well-positioned to trigger a 180-degree turn in marketing, while lists and contacts are a dying business. Marketing services and in-context e-commerce sustain growth in ad-driven media.

• B2B Trade Publishing & Company Information – In-person events are strong and continue to drive growth, showing an underdeveloped upside for extended engagement events. Data-fueled embedded workflow applications drive recurring revenue,

but remain a challenge for publishers, as large players continue to acquire them, with few building from scratch.

• Education, EdTech & Human Capital Management – The content segment of the education market is dwarfed by the potential of the market for solutions and services. While there will be winners and losers in edtech, Outsell does not see a bubble scenario, although take-up of digital solutions may be slower than market entrants would like.

• Finance, Legal & GRC – Semantic search is emerging as a powerful tool in financial services, enabling users to accelerate decisions in evaluating investments. Technology and consumer demand for regulatory visibility are driving a direct-to-consumer model that threatens the legal solutions industry with low-cost/free, high quality solutions. GRC solutions providers benefit from market dynamics, which require immediate reaction to scandals/issues (e.g., money laundering).

• Scientific, Technical & Medical Information – Hot spots include healthcare analytics for clinical, operational, and financial end-users, while personalized medicine is growing using genomic data for research and clinical applications. Research analytics software and technologies are growing more sophisticated, as text, data, and visual analytics advances are occurring in all R&D intensive sectors. n

Information Industry Outlook 2014 (continued)

Nigel Gault, Co-Chief Economist, The Parthenon Group

global gdp stalls in 2013

Global GDP growth stalled in 2013, due to fiscal restraint in the developed markets and structural problems in the emerging markets. In the US, fears that the Fed might withdraw monetary stimulus prematurely have hurt the economy, as have fiscal tightening followed by brinksmanship in Washington over the debt ceiling. In the end, the recent government shutdown was frustrating, but not an economic catastrophe.

us growth expected to strengthen

As shown in the accompanying chart, US growth is expected to strengthen in the coming years, with real GDP growth of 2.7% and 3.3% forecast for 2014 and 2015, respectively, following growth of

only 1.5% in 2013. With consumers accounting for nearly 70% of GDP, much of the growth ahead can be attributed to increased spending by consumers, who will be helped by a rebounding housing market. Housing activity, which accounts for about 3% of US GDP, is forecast to rebound significantly in the years ahead, with 17% growth in residential investment spending in both 2014 and 2015.

developed markets expected to rebound

In 2014 and beyond, faster growth is expected in the developed markets, as the US housing market is in recovery, and consumer spending should accelerate too. At the same time, Europe is starting to show growth, and Japan is aggressively stimulating its economy. Eurozone GDP grew in the second quarter of 2013, after six consecutive quarters of decline, and the year 2014

should see continued growth. The financial sector has not yet healed, though, and bank lending to the private sector is still contracting, not a sign of a strong recovery.

Emerging markets, on the other hand, have lost momentum. China must figure out a new model to increase private consumption, as its existing export- and investment-driven growth model is no longer working. Although China’s real GDP growth has slowed, it still surpasses other major emerging markets, which must come to terms with the fact that the Fed will sooner or later begin to scale back its monetary stimulus. As a result, capital flows into emerging markets will be far more discriminating than before, and those nations that have neglected structural reforms face difficult adjustments ahead. n

Economic Outlook

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“Marketing automation will accelerate and continue to remake the marketing services landscape.”

150 East 52nd Street, 18th Floor New York, NY 10022 212-754-0710 www.jegi.com

Wilma Jordan Founder & CEO

wilmaj@jegi.com

Tom Pecht Managing Director

tomp@jegi.com

Scott Peters Co-President

scottp@jegi.com

David Clark Managing Director

davidc@jegi.com

Tolman Geffs Co-President

tolmang@jegi.com

Daniel Avrutsky Managing Director

daniel@jegi.com

Bill Hitzig Chief Operating Officer

billh@jegi.com

Richard Mead Managing Director richardm@jegi.com

Adam Gross Chief Marketing Officer

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Chris Calton Managing Director

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Amir Akhavan Director

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Tom Creaser Executive Vice President

tomc@jegi.com

May 2013

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a leading provider of shoppingand shopper marketingsoftware and services

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a leading operator of large,business-to-business tradeshows

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a leading creator, producer, anddistributor of premium videocontent across digital media

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a digital creative consultancy

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JEGI - The Consistent Leader in Media, Marketing, Information & Technology M&A Transactions

jegi’s client is mentioned first in each of the above transactions.