Revolution Partners' Joshua Tanzer has spent most of his career covering tech. He was the global head of PE for CSFB's technology group, he founded the tech and digital media boutique Principia Partners and was an MD at Lazard Freres & Co. until January of 2006. At that point, he moved to Revolution Partners where he now serves as a managing director in the firm's Los Angeles office. Jonathan Marino caught up with Tanzer at the recent OnMedia NYC 2008 technology conference in January to discuss the latest M&A hotspots in the sector.

Mergers & Acquisitions: You work with LookSmart, an established online advertiser in a growing space. Should LookSmart, and similarly sized competitors in online media anticipate increased interest from strategic buyers?

Tanzer: The M&A market for online marketing companies, including search, like LookSmart, is really the equivalent to being in the first few seconds into a ride — such as a zipline. We're about eight seconds into that ride. If you've ever been on a zipline, in the first three seconds, you're just gaining momentum. The next five seconds, you're gaining actual speed, and I feel like that's where we are right now. I think we have a 30 second ride ahead of us and we've gone through eight seconds.

The first three seconds, was 98 to 2004. Even though there might have been some successful outcomes from a financial point of view, they really didn't mature. And it's really in 2004 that the acceleration of the M&A market and the entire industry started to move. Advertising.com was acquired by AOL in 2004. I had raised money for them. And that's also when Google went public.

It was really spurred by Google. Those two transactions, Google and Advertising.com, were for almost a half billion dollars. People said, "These Internet ads are working."

We had gotten away from banner ads at that point. Since 2004, to 2007, there's been a string of deals — 24/7 Media, BlueLithium, DoubleClick, and other deals involving ad networks, ad exchanges, behavioral targeting, like Dakota. I think that pace will continue for the next couple of years. The economy is slowing down, and that could slow the pace of acquisition.

Most of the deals are being done in cash and the multiples are moving lower, but the deals are getting done.

Mergers & Acquisitions: If Content Delivery Network (CDN) rates continue to drop in 2008, what kind of investment interest can more recently formed companies expect?

Tanzer: The prices are coming down. They've been crushed, actually. We represented a company called VMIX, which manages large media companies' Web sites for community content. VMIX is a classic example, they're just arbitraging the CDN.

The CDN is a commodity; it's a pipe. My knowledge is through companies that use CDNs, I don't work with them directly. But I think that market is ripe for consolidation. My gut, says it will happen over the next six months. That market is crushed.

Mergers & Acquisitions: CDN titans like Akamai and Limelight Networks have each been speculated this year to be possible M&A targets of titans like Google and Microsoft. If either, or both deals materialize, what effect will that have on the CDN and online media space?<

Tanzer: You can provide the lowest-cost denominator to the consumer. A takeout would continue to drive down prices. I don't know that the [U.S. Department of Justice] would let them get away with it. Especially with [the objections made to the merger between Google and] Doubleclick.

Mergers & Acquisitions: What do social networking, especially niche sites, like those aiming for specific segments of professionals and communities, do to garner online advertising spending?

Tanzer: It goes back to vertical ad networks. There is momentum in that business. That is not ripe for consolidation, that could be an '09 event, maybe 2010. Let's see how this year goes. They're still in their infancy. I would say that is an industry that will be consolidating and I think there is a lot of momentum in that business.

Mergers & Acquisitions: Looking ahead, where do you expect to see consolidation come from?

Tanzer: I think MySpace, those guys, will stick to their knitting. They'll let the agencies jump in. WPP [Group] has already bought 24/7 [Real Media]. Obviously, the big three: Google, Microsoft, AOL. I do think other publishers may come in too. I think Lagadare [Group], out of Paris, bought one of the automotive verticals. Publishers like Scripps, Hearst, may buy a vertical ad network that dovetails with the content of their magazines. For price, you may have to stomach dilution. The good thing about the ad agencies is that they still trade at 10 times to 11 times Ebitda. They can be competitive. Anyone can be competitive with Google. The ad agencies can offer pretty attractive pricing.



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