The global M&A outlook for 2013 as a whole appears uncertain. Remark and mergermarket's "Doing the Deal" study shows less than 50% of Europe's leading dealmakers expect a rise in M&A activity over the coming 12 months, with lingering uncertainty and lack of confidence as a result of austerity measures on the agenda of most European governments.

Turning specifically to the outlook for technology M&A, Ernst & Young's global technology M&A report for November 2012 identified a widening gap between buyers' and sellers' expectations for tech M&A valuations and, in light of the macroeconomic uncertainty, suggested that large tech M&A deals were giving way to smaller, more strategic transactions "driven by long term megatrends that are generating disruptive innovation in technology and leading to technology enabled innovation in other industries". It is likely that technology M&A in the first half of 2013 will continue to be driven by those same factors which drove activity in the latter stages of 2012, principally (i) big data, (ii) cloud computing, (iii) smart mobility and (iv) social networking.

The last of these 4 short articles focuses on Social Networking, looking back at some of the deals from 2012 and potential activity for the coming 12 months.

Facebook, Twitter, Pinterest, LinkedIn, Google+, YouTube, Instagram, Tumblr, Foursquare, Yammer, Meetup... the list of popular social networking sites continues to grow as end-users continue to sign up in their millions across the globe.

As social networking becomes more and more pervasive as a means of communication across both personal and professional daily lives, there is increased M&A activity in the social networking space as existing operators seek to monetize their user base, and opportunities arise for new businesses to provide ancillary services around the networks themselves, such as app development, content aggregation / distribution and analytics.   

Talent and technology drive M&A across the social networking sector, enabling the leaders to strategically acquire creative engineers and new technologies which tweak and fine-tune the online experience. Transactions in the social networking sector in 2012 were therefore focused around two main drivers, the acquisition of developer teams, and the acquisition of software and platforms.  

While question marks remain over the efficacy of advertising through social networks (according to Nielsen's Social Media Report 2012, only 10% of social network users have made an online purchase based on a social ad), the growth in social networking and mobility has also led to a huge demand in multichannel advertising and brand engagement across these platforms. This in turn has led to consolidation in the social and digital media marketing sector, particularly among firms who are able to offer analytical products to enable brands to determine the effectiveness of their online and mobile marketing campaigns.

The social networks

Facebook started 2012 fairly slowly, making its first acquisition in April. That was its $1 billion acquisition of Instagram. Following the Instagram acquisition, Facebook went on to acquire a further 8 businesses last year, two of which highlight nicely the split in M&A activity in social networking between acquiring talent and acquiring technology. The acquisition of the developer team from Lightbox.com (a London start-up that developed a mobile photo sharing Android app) highlighted Facebook's desire to acquire talented teams of developers who would be able to create successful mobile apps to satisfy their mobile users, while its acquisition of Face.com for $100million facilitated the acquisition of facial recognition technology.

As the Instagram acquisition shows, the price tag for successful app businesses can be headline grabbing. Innovative mobile apps which feed into and use data from social networking sites (via aggregators) could also be good acquisition targets in 2013

The acquisition of creative talent has continued into 2013, with Pinterest dipping its toe into the M&A waters for the first time with its acquisition of homecooking start-up Punchfork. It is understood that Punchfork will be shut down and its developers put to work on improving Pinterest. Pinterest has experienced rapid growth over the last year and the news of a special purpose fund being established to give liquidity (and an exit) to early investors, could be a signal that Pinterest is looking at an IPO in the short-term.  Yahoo's recent acquisition of Snip.it also shows that the leading web companies are on the hunt for creative talent, with Snip.it also being shut down so that its developers can get to work on Yahoo products and services. The challenge of course of integrating an entrepreneurial team of developers into a larger business in staff retention, and consideration structures for these deals include a greater focus on earn-outs.

Social networking for business

A recent study by IBM revealed that 57 percent of CEOs identified social business as a top priority and 2012 saw many businesses exploring how to use social media as both a CRM tool and a platform to facilitate innovation across its enterprise. Microsoft's acquisition of Yammer for $1.2 billion was one of the larger deals of 2012. Yammer, which has more than 5 million corporate users, including employees at 85 percent of the Fortune 500, allows employees to join a secure, private social network and communicate strategic initiatives across the firm. IBM's acquisition of Kinexa for $1.3 billion was driven by IBM's desire to provide front-office software tools for business to boost customer service, and foster internal innovation and expert discovery through a cloud-based, social network solution.

LinkedIn's acquisitions of professional content sharing platform SlideShare for $119 million and Rapportive (a technology enabling the integration of LinkedIn, Facebook, Twitter, and a users Gmail address book) and Adobe's acquisition of Behance in December 2012, allowing members of Adobe's cloud service to showcase their work and distribute it across devices, all showed the growing relevance of social media in professional networking, and the M&A opportunities which arise where technologies help connect professionals and improve the end-users experience.

Social media advertising & Analytics

While the impact that Facebook's Graph search (and its tie-up with search provider Bing) will have on advertising through the social network remains to be seen, spend on social media advertising has previously been projected to grow 35% in 2013.  Online social engagement is becoming increasingly important to big brands and an increase in advertising through the social networks should lead to further consolidation in the social and digital media marketing industry, particularly those agencies providing automation and web analytics for the brands to measure the results of their campaigns. Activity in this sector has been steady since 2010, with the leading marketers looking to consolidate their offerings across publishing, advertising, applications, and analytics.  2012 deals of note in this sector include Google's acquisition of Wildfire for $250m, WPP's acquisition of Fortune Cookie (one of the fastest-growing digital media companies in the UK), Oracle's purchase of social media marketing platform provider Vitrue and monitoring firm Collective Intellect, and Salesforce' acquisition of Buddy Media (a company which enables brands and advertisers to connect with more than a billion customers on Facebook, Google, LinkedIn, Twitter and YouTube).  Facebook's acquisition of Threadsy (and its social insights tool Swaylo) as a precursor to its launch of the Graph is also a good example of M&A activity driven by the growth in social network search and advertising.  Swaylo, as a data tool, should help advertisers more narrowly target their messages to key users on Facebook who are shown to hold more influence (or sway) over friends' habits.  Betapond's acquisition of Facebook marketing app agency iPlatform, which had developed apps for clients including Swatch, the Economist and Tesco, was a notable deal for London's Tech City in 2012, confirming that London's burgeoning tech hub can provide world class startups.

M&A in the social networking space clearly has the ability to grab headlines with big ticket deal values where the key asset being acquired is a disruptive technology that has managed to build a large user base. 2013 is likely to continue to show this trend with several high value transactions, but we should also see a number of smaller more strategic plays, particularly where the main driver for the deal is the acquisition of the creative talent behind the start-up brands.

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