Mergers and acquisitions activity in the U.S. has reached a record value so far this year, thanks to a couple of huge deals in the works, including Charter Communications‘ (NASDAQ:CHTR) $78.4 billion bid for Time Warner Cable (NYSE:TWC) and other activity in media, technology and health care.
From Jan. 1 to May 28, M&A activity reached $746.9 billion in estimated value, up 52% from a year earlier, according to data compiled by Thomson Reuters. By dollar amount, it’s the strongest year-to-date period for U.S. dealmaking since Thomson Reuters began recording deals in 1980.
Some historic pending transactions have juiced the total dollars so far. The Charter-Time Warner Cable arrangement is the largest cable television deal on record, while the $36.2 billion Avago Technologies (NASDAQ:AVGO) bid for Broadcom (NASDAQ:BRCM) is the second-largest tech deal on record.
Health care, technology and media account for 53% of U.S. M&A value so far this year, compared to 49% in the year-ago period. Cable M&A totaled $97.2 billion so far this year, up 42% from a year earlier.
It merits mentioning that merely announcing a deal doesn’t mean that shareholders and regulators will necessarily approve it. Comcast (NASDAQ:CMCSA) abandoned its $45.2 billion bid for Time Warner Cable last month after federal regulators raised too many hurdles over anti-competitive elements in the proposed transaction.
Among the investment advisors racking up fees for counseling buyers or sellers of U.S. deals, Morgan Stanley (NYSE:MS) — which advised Time Warner Cable on the Charter deal along with Citigroup (NYSE:C), Allen & Co. and Centerview Partners — topped the list of transactions that a single advisor worked on, with 58 deals valued at $209.3 billion.
Global M&A activity totaled $1.7 trillion, up 35% from a year earlier.
For years, digital marketers have been shackled to an increasingly outdated technology known as cookies, which are still used to measure and target digital ads.
Cookies — bits of code dropped into web browsers — are known to generate poor approximations of how many people view a digital ad, inaccurate estimates of how many times any given individual sees an ad, not to mention unreliable measures of clicks and sales. Worst of all, cookies are a non-starter within mobile apps.
In a new in-depth explainer and report from BI Intelligence, we dive into how Facebook-owned Atlas aims to take digital marketing beyond the cookie. Atlas is notable for how it leverages anonymous Facebook identity data to correct cookies’ inaccuracies and shine a light into what’s happening within the cookie-less world of mobile apps. In addition, Atlas’ ambition is to be able to connect offline purchases and conversions to digital ads shown across mobile and the web.
Facebook’s Atlas is an ad server that also allows ad buyers to measure, target, and optimize digital and mobile ads across digital (i.e., not just on Facebook). Atlas operates separately from Facebook, does not access personal information from the social network or share marketing data with Facebook.
Atlas is pitching itself primarily based on the claim that it can go far beyond cookie-based measurement to more clearly establish the ROI of digital ads, particularly when mobile is involved. Taking measurement beyond the cookie means marketers can focus on metrics beyond the last click, and observe the multi-device process that often leads in purchasing online or offline.
Atlas’ ambition is also to be able to connect offline purchases to digital ads shown across mobile and the web. To do so, it must have access to advertisers’ customer data or consumer data from third-party data vendors.
Atlas has a particularly strong advantage when it comes to measuring mobile ads. Cookies don’t work in mobile apps, so many marketers are flying blind when it comes to in-app ads. Atlas matches device-ID data with anonymized identity data of the user that accesses Facebook on the same device.
It’s important to remember that Atlas works with ad buyers, not ad sellers. Some major brands and agencies are already using or at least testing Atlas.
Despite some clear advantages, Atlas has some crucial limitations, which are spelled out in the report. The principal one is that it will be very difficult for Facebook to wean the digital-media ecosystem off its reliance on Google’s DoubleClick platform, which is so well-entrenched.
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A tech entrepreneur recently was celebrating his good fortune at a penthouse party overlooking the Las Vegas Strip, but the scene could well have unfolded in New York, San Francisco or any other city where entrepreneurs are feeling the glow of success.
“It’s spectacular, befitting this conference and the people here,” gushed Joe Liebke, CEO of Villaway, a luxury-vacation company that hosted a party during the recent tech-centric Collision Conference here. “Enjoy it.”
Enjoy, the tech industry has. A dizzying mix of bold ideas and lavish investments has catapulted dozens of privately held start-ups to unicorn status, defined as having market valuations of at least $1 billion often without soaring revenues to match. Social-sharing site Pinterest has soared to $11 billion. Ride-hailing company Uber is now worth a staggering $50 billion.
How long can the party last?
While not all tech sector veterans invoke the catastrophic dot-com bubble of 2000, many are nonetheless concerned a correction of sorts is imminent, according to interviews with more than a dozen VCs and executives.
Nasdaq’s new-high math: Breakout or bubble?
“I do think you’ll see some dead unicorns this year,” venture stalwart Bill Gurley of Benchmark Capital told a crowd at South by Southwest a few months ago. That sentiment was echoed weeks later by Sequoia partner Michael Moritz, who declared: “A considerable number of unicorns will become extinct.”
The belief is that revenue isn’t growing fast enough to justify these bloated values as companies rapidly burn through cash. The fear is that wounded unicorns will trip up the trumped-up value of many other tech start-ups. And the reality is that when social-media titans Twitter (TWTR), LinkedIn (LNKD) and Yelp (YELP) recently posted middling quarterly results, it served only to fuel the unease.
The pitfalls of an inflated market value is highlighted by the cautionary tale of Box (BOX), which went public in January. The cloud-storage provider had a valuation of about $2.4 billion when it raised a VC investment of $150 million in July 2014. But by the time it went public, its valuation had sunk to $1.7 billion.
“You can’t smell the soap when you are inside the bubble too long,” says David Chao, co-founder and general partner at DCM Ventures, told USA TODAY. “Everyone in the industry knows it’s a bubble but just wants to believe otherwise. (It’s) human psychology. This cycle of the tech bubble will last until smartphone penetration tapers off worldwide in about 18 months.”
Tech maverick Mark Cuban doesn’t mince words. “I have absolutely not (sic) doubt in my mind that most of these individual Angels and crowd funders are currently under water in their investments, absolutely none,” he wrote in a blog post titled, “Why This Tech Bubble Is Worse Than the Tech Bubble of 2000.”
He continued, “There is ZERO liquidity for any of those investments. None. Zero. Zip. … The only thing worse than a market with collapsing valuations is a market with no valuations and no liquidity.”
HOW 2015 ISN’T 2000
Such dire warnings aside, there are clear distinctions between the two eras, according to many VCs and tech executives who have lived through both and spoke to USA TODAY for this article. Technology, for one, is more deeply entrenched in the U.S. economy and less susceptible to a cataclysmic crash.
Former Apple CEO John Sculley says a changing audience — Millennials weaned on mobile devices and the share economy, for example — considerably alters today’s tech landscape.
“A lot of it is timing,” he says, pointing out similarities between failed dot-com delivery plays such as Webvan and today’s more successful iterations such as Google, which runs Google Express. Today’s start-ups are valued higher, but they are “real businesses” with proven financial models, he says.
Although there is more private capital chasing deals than ever before, “I wouldn’t call it a bubble,” says Kevin Iudicello, managing director of Pagemill Partners. “Most of the companies are in good shape, and there is no question they will grow — but at that valuation?”
That depends on whether private investors continue to overreact to the unicorn phenomenon, providing late, gigantic cash infusions in the hope of getting equity in the next Google or Facebook.
“There is a migration of capital from public markets to private,” says Scott Kupor, managing partner at Andreessen Horowitz. “We just haven’t seen these billion-dollar valuations overnight. But if you think of it as substitution of relatively fewer IPOs, concentration of money has shifted.”
“If it’s a bubble, it’s the strangest bubble we’ve seen by all dimensions,” Kupor says.
Research provided by Andreessen Horowitz shows just how much more super-heated the investment waters were in 2000, with far more money chasing considerably more tenuous business ventures that seemed eager to become IPOs at all costs. In 1999-2000, there were 632 tech IPOs, compared with 510 in the 13 subsequent years. In 2014, there were 49 public offerings, and just four so far this year.
Companies that went public last year had been around an average of 11 years. In 1999-2000, most companies rushed into their IPO after just 4½ years. On the money side, $33 billion was raised in venture capital in 2014, compared with $50 billion in 1999 and $105 billion in 2000.
Companies are staying private longer for a variety of reasons: to avoid the public market meltdown that befell their predecessors at the turn of the 21st century; structural changes in capital markets; and the rise of the activist shareholder.
But while aggregating an audience through “eyeballs” (customers) was the main goal 15 years ago, most of the unicorns today — think Uber and Airbnb — are built around real solutions, says Justin Kitch of Curious.com, formerly Homestead. He had been courted by bankers and filed to take Homestead Technologies public just before the 2000 bubble popped. Instead, he kept Homestead private for seven years, until it was sold to Intuit for $170 million in 2007.
“It used to be growth at all costs,” Kitch says. “What is happening today is once someone gets a high value, it is passed along to similar companies, regardless of the company. Uber is a real business, in a transformative industry. It is not a Webvan.”
THIS TIME ‘PUBLIC MARKETS HAVE LEARNED’
Trinity Ventures partner Patricia Nakache has worked as a venture capitalist for more than 15 years and witnessed the boom and bust of the dot-com bubble and great recession. Having carved out a name for herself as an investor in mobile commerce, she is seeing trends as an investor that mirror those of the late 1990s — particularly around the way entrepreneurs manage their relationship with the VC world.
Despite these similarities, the differences are notable. In 2000, the bubble extended to public markets, but this time it is concentrated in growth equity of VC, especially those that raised $1 billion via mega-rounds. “It’s like a temperature inversion, but it is more pronounced,” she says. “We have a localized bubble. The public markets have learned.”
Stop falling for this tech bubble trick
In fact, “the public market is more rational than the private sector, which is overpaying in later rounds,” says Joe Horowitz, managing general partner at Icon Ventures. “They have been set up for disappointment.”
The escalated valuations are emblematic of a tech-heavy Nasdaq market, which topped 5,000 points for the first time in 15 years earlier this year, and stratospheric market valuations for publicly traded companies such as Apple, Microsoft, Google and Facebook.
But those companies are established, pumping out profits in the billions of dollars.
Burn rates, the amount of cash companies are losing every month to operate, are spinning out of control, Gurley and others contend. Start-ups are spending at a rate far out-stripping revenue in attempts to drive growth.
There is also the possibility of an X-factor: unexpected events in Middle East or China that roil the market.
The real bubble is in bonds, says Peter Thiel, a PayPal co-founder and early investor in Facebook. “Central bankers have intervened to drive up prices, and that won’t last forever,” he says. “There are overvalued companies today — just like there are at all times — but the best companies are still seriously undervalued.”
Thiel says it’s important to note that those tech companies that did come through the bubble intact are among the biggest companies on the planet.
“If you look back, survivors like Amazon and Google are among the most valuable companies in existence today,” he says. “It was way more important to pick the right companies than to predict the crash.”
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Michael Steele – President, The Steele Group
When he was elected Lt. Governor of Maryland in 2003, Michael Steele made history as the first African American elected to statewide office; and again with his subsequent chairmanship of the Republican National Committee in 2009.
As chairman of the RNC, Michael Steele was charged with revitalizing the Republican Party. A self-described “Lincoln Republican,” under Steele’s leadership the RNC broke fundraising records (over $198 million raised during the 2010 Congressional cycle) and Republicans won 63 House seats, the biggest pickup since 1938. His commitment to grassroots organization and party building at the state and local levels produced 12 governorships and the greatest share of state legislative seats since 1928 (over 600 seats).
As Lt. Governor of Maryland, Mr. Steele’s priorities included reforming the state’s Minority Business Enterprise program, improving the quality of Maryland’s public education system (he championed the State’s historic Charter School law), expanding economic development in the state and fostering cooperation between government and faith-based organizations to help those in need.
Mr. Steele’s ability as a communicator and commentator has been showcased through his current role as a political analyst for MSNBC. He has appeared on Meet the Press, Face the Nation, HBO’s Real Time with Bill Maher, Comedy Central’s The Colbert Report and The Daily Show.In addition to his work in television, Mr. Steele can be heard each week on his radio program, Steele & Ungar on the POTUS Channel on SiriusXM.
Mr. Steele writings on law, business and politics have appeared in The Grio.com, The Root.com, BET.com, The Wall Street Journal, The Washington Times, Politico.com, Townhall.com, The Journal of International Security Affairs and Catholic University Law Review, among others.
He is the author of Right Now: A 12-Step Program for Defeating the Obama Agenda, which is a call to arms for grassroots America and co-author of The Recovering Politician’s Twelve Step Program to Survive Crisis.
Born at Andrews Air Force Base in Prince George’s County, Maryland, Mr. Steele was raised in Washington, DC. Upon graduating Johns Hopkins University (‘81’), he entered the Order of St. Augustine where studied for the priesthood. He is a graduate of Georgetown Law Center (’91), an Aspen Institute Rodel Fellow in Public Leadership and a University of Chicago Institute of Politics Fellow.
Steven R. Gerbsman – Crisis/Turnaround CEO/Restructuring Professional, Private Investment Banker, Founder of Gerbsman Partners
Steven R. Gerbsman is a nationally recognized Crisis/Turnaround CEO/Restructuring Professional and Private Investment Banker who has been involved in maximizing enterprise value, stakeholder and shareholder value in a broad variety of industries. He has worked with a wide spectrum of senior and junior lenders, bondholder groups, venture capital and private equity sources, private investors and institutional groups. He has acted in the capacity of Crisis/Turnaround CEO, Chief Restructuring Officer, Crisis Consultant, Private Investment Banker, Examiner for the Office of the United States Trustee, a member of the Board of Directors of various companies and Advisor to stakeholder groups.
Mr. Gerbsman has over 45 years of senior management, marketing, sales and finance experience and has been involved in various business and investment ventures as an Officer, Director, Consultant and Investor, both in the US and internationally.
Since 1980, he has been in the business of maximizing enterprise value for highly leveraged, under-valued, under-performing and under-capitalized technology, life science, medical device, solar, digital marketing/social commerce and information/cyber security companies and their Intellectual Property, as well as assisting technology, digital marketing and medical device companies with strategic alliances, M&A, distribution of content and licensing. To date, Mr. Gerbsman has been involved in over $2.3 billion of restructuring, financing and M&A transactions. In 2000, he also began focusing on Israeli and European technology and life science companies, with the objective of providing access to the US capital markets and developing strategic alliances, M&A and licensing opportunities for them.
In 1999, Mr. Gerbsman expanded Gerbsman Partners’ “Board of Intellectual Capital” as a resource to rapidly identify business and marketing strategies, strategic alliance candidates and financing for its client companies and their Intellectual Property. This distinguished group includes nationally and internationally recognized financial, communications, media, advertising, public relations and technology senior operating executives.
Mr. Gerbsman has also assisted numerous Venture Capital/Private Equity Investors in terminating/restructuring their real estate and equipment lease executory contracts. To date, he has been involved in terminating/restructuring in excess of $ 810 million of real estate, sub-debt and equipment lease executory contracts and since 2001, has maximized enterprise value for 88 technology, life science, medical device, digital commerce, solar, information and cyber security and fuel cell companies and their Intellectual Property.
Prior to forming Gerbsman Partners in 1980, he was President of four operating divisions at ITEL Corporation with responsibility in the technology, leasing and business sectors. Mr. Gerbsman began his business career at the IBM Corporation in 1967.
Mr. Gerbsman received a BS degree in Accounting from Hunter College, New York and attended the Baruch Graduate School of Business, in New York City. Mr. Gerbsman has also been a guest lecturer at the McDonough School of Business MBA program at Georgetown University, at the Haas Graduate School of Business in Berkeley, California and a Mentor at Stanford University in the Stanford Engineering School via STVP (Stanford Technology Ventures Program) and SCPD (Stanford Center for Professional Development). He is a Director at the Kentfield Fire District, where he has previously served as Chairman.