Report: ’08 Heavy on Online M&A, Venture Capital Activity

Despite the ongoing economic meltdown, 2008 was a year of heavy merger, acquisition and venture capital activity in the online space. However, the number of dollars changing hands in such deals plummeted versus last year, according to a new report issued by Peachtree Media Advisors.

Peachtree recorded 707 mergers, acquisitions and incidences of capital being raised in the digital space last year, 92 more than in 2007. But in total these deals were valued at $16.9 billion, a sizable 62 percent decrease versus the $44.4 billion tracked in 2007.

Interestingly, Peachtree found that more VC money flowed into all segments of the media business in 2008, up 22 percent to $3.5 billion compared to 2007. The segment that saw the largest percentage increase in capital raised was what Peachtree defines as the Enabling, Analytics and Ad Serving category—i.e. companies that provide tools, software and optimization products used to support online media businesses.

While their were more total-capital raise transactions for media companies looking to attract audiences, (59 for the video & online games segment, 57 for the social networking segment), the amount of dollars going toward the support side of the business soared to $892 million in 2008, an increase of 124 percent, according to Peachtree.

That finding echoes a similar M&A report issued several weeks ago by The Jordan Edmiston Group, which cited “marketing and interactive services” as an M&A leader. “We are especially bullish on marketing services and anticipate that the advertising slowdown will dramatically alter spend patters and surface many viable and compelling M&A opportunities, as well as unexpected buyers,” read the report.

Yet Peachtree’s report also found that with M&A/capital-raising activity slowing down dramatically in the fourth quarter of 2008, the signs point to a tougher 2009—particularly as venture capital firms likely exercise less patience. “Unfortunately, the past year has shown that investors were not willing to finance cash burn for indefinite periods of time proving that it was just as easy to fold an online media company as it was to start one up,” warned the report.