London, 18 March 2008

>>Please click here to view the presentation slides as a PDF file<<

FirstCapital, the technology investment bank, hosted more than 140 entrepreneurs, investors and buyers of internet businesses at a breakfast seminar on 12 March 2008 in central London. The seminar evaluated recent trends in internet M&A and the outlook.

Key findings were:

-Data acquisition deals, not consumer internet, created the 2007 bulge in deal figures; when average valuations grew from 3x to 13x revenue. The big deals here were: Nokia- Navteq, $8.1bn; TomTom Tele Atlas, €2.7bn; Thomson- Reuters, £8.7bn; Reed Elsevier- ChoicePoint, $4.1bn; News Corp- Dow Jones, $5.6bn; Macrovision- Gemstar, $2.8bn.
-Buyers in 2008 are pushing pricing down
-But despite the bubble, sub £100m deals for businesses with strong market positioning, solid profits and steady cashflows are holding up.

The speakers were:

- Jason Purcell, CEO and Founder, FirstCapital - Sara Clemens, Director, Business Development and Strategy, Microsoft Online Services Group - Rob Feldmann, Head of M&A, News International - Sean Phelan, Founder, Multimap (recently acquired by Microsoft)

Jason Purcell presented a FirstCapital study of M&A activity in the internet sector since 2005. Key insights were:

- The number of deals almost doubled in 2007 (to 277), and value more than trebled to £37bn. This was driven by multi-billion pound deals such as Webex, Navteq & Doubleclick.
- The quarterly data shows that the market peaked in mid 2007 and has been falling since, driven by the credit crisis and US recession. We are unlikely to see as many big deals completed in 2008.
- Price/revenue multiples rose from 3x to peak at a staggering 13x in mid 2007. Pricing has since started to fall.
- The sub-£100mn segment remains resilient. FirstCapital’s conversations with buyers confirm that they remain actively engaged in buying high quality companies, with proven business models, in this range.
- Many entrepreneurs think of only a handful of players as potential acquirers (eg large US internet players like Google, Yahoo and Microsoft) which tend to generate the exit headlines.
- However, a range of industries is now fighting for a piece of the action, and the universe of potential acquirers is much bigger and more complex. There were almost 400 different acquirers of internet businesses in the last 3 years.
- The most valuable sector was data acquisition (£19bn), rather than consumer internet as the headlines might suggest. Big deals in geospatial & business information dominated 2007 numbers.
- The US is an important acquirer of UK businesses (31%) but over half of all deals (53%) are between UK companies. Again, entrepreneurs should think beyond the big US names as potential exits.

Comments from the panellists echoed the findings of the FirstCapital research. While they agreed that the inflated valuations of the last few years were unlikely to continue, they also supported the view that acquirers would continue to pay fair prices for strong companies with sound fundamentals and excellent management teams, where the companies represent a good strategic fit and would add value to their existing businesses.

Rob Feldmann illustrated this point by explaining that, while News Corp executives had received clear instructions from Chairman Rupert Murdoch not to consider paying the valuations which were common 12 months ago, they were continuing to look opportunistically for solid internet companies with strong projected cashflows, and exceptional management, where they could bring some unique value as a result of their existing offline assets and readership. Feldmann referenced their Milkround and Brand Alley deals as examples (in the recruitment and fashion sectors respectively) where they could strengthen their online presence in key verticals and also help founding management to accelerate the growth of their businesses by leveraging News International’s offline presence and audience.

Sean Phelan echoed Feldmann’s comments on the importance of building a solid business for the long term which will be of strategic importance to an acquirer. Having started Multimap in his spare bedroom and built it over 10- 12 years into a profitable business and one of the UK’s leading online properties, the business was a strategic acquisition target for Microsoft as they sought to bolster their position in the European local search and online mapping segments. As one of Europe’s leading online mapping providers, Multimap was valuable to Microsoft as it brought deep, sustainable customer relationships (B2B and B2C), strong revenue growth and good profitability, an excellent management and a talented team, and leading-edge technology which expanded their range of services in a core market. The deal was right for Multimap shareholders and management too as, by partnering with one of the major players, there would be the resources and support to take the business to the next level as competition in the European online mapping arena intensifies.

In his closing remarks, Purcell summed up the key insight which had emerged from the analysis and the discussion: while headline valuations are likely to decrease in 2008, particularly at the larger end of the market, the fundamental message about building quality businesses with proven business models has not changed. Internet businesses with strong market positioning and sustainable profits and cashflows will continue to be valuable targets for acquirers so entrepreneurs should focus on building companies which fit this description.

About FirstCapital:
www.firstcapital.co.uk
FirstCapital is an investment bank that specialises in fund raising and mergers and acquisitions advice for high growth technology companies. Established in 1999, it has offices in London and Cambridge. Clients include entrepreneurs, technology companies and investors in private companies.

Our team is experienced in a wide variety of deals, from start-ups to multinationals in both UK and international cross border transactions. We provide pro-active, informed, full service deal management, including assistance with strategy and planning, finding and approaching investors or M&A targets, valuations and hands-on transaction execution. We work in partnership with our clients to achieve their goals, offering impartial advice and support based on our knowledge of the market and of each client's individual requirements, and sharing alongside them in the risks and the rewards of success.

Recent FirstCapital transactions include:

- Ranier: $16mn Series B round from Alliance Trust and FirstVentures
- Multimap: Sale of Multimap to Microsoft
- Prosonix: £5mn Series A round from Solon, Quest and Entrepreneurs fund
- GlassesDirect.co.uk: £3mn Series A round from Index Ventures and Highland Capital Partners

FirstCapital is authorised and regulated by the UK Financial Services Authority.

For more information, contact:

Jason Purcell, CEO
Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it
Tel: +44 (0) 208 563 1563


>>Please click here to view the presentation slides as a PDF file<<