Archive for November, 2007

Mayday or Payday?

By Eleanor Haas

Just how far-reaching is the
fallout from July’s credit crash? Major
financial markets firms took big hits, and two lost their CEOs – Merrill and
Citi.  Morgan Stanley just lost a
co-president. News commentators wonder aloud
whether we’re headed for a recession. In
fact, news media are full of gloom and doom. But perhaps their heads are too high up in theoretical clouds to see the
reality that the sky has not fallen – smart investors are still making money.

My friend John says his HNI
friends (High Net Worth Individuals) are fleeing to the security of mutual
funds. My friend Jeff is having success
raising a new venture fund.  My friend Arthur is
judiciously managing his portfolio of real estate investments, buying or
selling, wherever the best advantage lies.  Three different kinds of opportunity for three different kinds of savvy investors.

In other words, financial life
goes on. maybe It’s not mayday after all – at
least not yet.

Speakers from three private
equity funds bore this out last evening in the course of a panel discussion on
Exit Strategies and Fundraising in a Changing Environment, which was sponsored
by WAVE (Women’s Association of Venture and Private Equity). Opportunities abound for those who know what
they’re doing.

Timing is everything, said Raquel
Palmer, a partner with KPS Capital partners, which buys troubled companies and
fixes them. “We had nine exits in
fourteen months,” she said, “the foreign market is still open. The US is on sale. European and Japanese
strategists get good value.”

“The market is open, but
selectively, by company and by sponsor” said Linda LaGorga, Managing Director,
Financial Sponsors Group, Goldman Sachs, who sees good exits for strong assets
in the $50 million EBITDA and above market. “The financing market is volatile. It’s there for some assets, not others. You have to get ready and time it.”

“Strategics were not hurt by the
bank pull-back on financing, as private equity funds were,” said Bill Jarrett,
Managing Director, Lower Middle Market, Goldsmith Agio Helms/Lazard Middle Market. “We’re more selective. Some industries are out of favor –
housing. Service industries are dong
well, for companies with good cash flow and EBITDA.”

Services with good cash flow and
steady growth, which are not cyclical, sell well in this market, and buyers are
out there, agreed Ms. Gorga. Large
private equity funds want to buy by the end of 2008, so they play at the lower
level, $750 million, look at smaller assets in order to put money to work. PIPES are another way to put equity to work
now and be in a good position later.

Niche companies in their
segments – often with consolidation – are a good bet. Mr. Jarrett sees “lots of buyers for rollups
and synergistic acquisitions. An
international component to the transaction can be a deal sweetener – a foreign
buyer or an international component of the company.

What private equity buyers have
to look at in making an investment is the exit opportunities, so they look for
companies with strong market share – a good niche player with a franchise, Ms.
Palmer pointed out.

What about valuation, pricing
and terms?

  • There’s still a backlog of leveraged loans, and this
         impacts big buyouts, as does concern about a potential recession and the
         volatility of the housing market. Most deals in the $50 million and above market have covenants,
         going back to the more traditional deal. Leverage has come down. It’s
         2002 all over again. The market
         will recover.
  • Valuations are down. There’s a shifting of risk – escrows, warrants, liabilities. Sellers may take lower multiples if the
         terms remove certain escrow commitments. Seller financing is coming back, which can help bridge the gap
         between expectations and valuations.
  • The lower middle market depends on smaller banks for
         financing. The pullback is at the
         high end of the market, not this one, where lending may now be a 3 times
         EBITDA as opposed to 3.5 times. Smaller banks are cautious now, but they’re still financing

What kinds of deals have you had
since the credit crisis began?

  • KPS is having “great deal flow” because companies
         can’t readily get bailout funds. Two of four companies KPS is looking at are operating in Chapter
         11. This makes them easy to clean
         up and recapitalize. KPS expects to
         see more of this. Investment banks
         used to dictate pricing with staple financing, but people are not seeing
         these any more.
  • The Middle East has huge amounts of money –  multiples of the largest US funds – and offers good ways to sell a company. New lenders are stepping up – new banks are entering the market. Mezzanine funds are key. Goldman has a $9 billion fund that is stepping in and taking a subordinated part of the capital structure.
  • Typical deals take six months but now often take longer. On the other hand, a strategic – a domestic strategic – just did a deal at 10 times revenue in two months – with no book. International buyers take longer.

What about buy side

  • There’s still a lot of liquidity in the market. People will have to put in more equity,
         and sellers have to have more reasonable expectations. Private equity funds raise funds to buy
         debt and then take on debt to do this. That’s high risk. Many
         private equity funds won’t be successful raising funds because they can’t
    differentiate or create value for investors. Smaller PEs will vanish.
  • It’s a good time to buy a business and to buy it
         cheaper, and lots of companies in distress is an incentive to buy. Hedge funds are tempted. Their managers know how to run funds but
         lack experience with Chapter 11 and restructuring. They’re getting smart about Chapter 11
         strategies with distressed companies.
  • Seller expectations will come down, i.e., valuations. The credit market will stabilize. 2002 buyers did very well. You just can’t predict the timing of the cycle.
  • PEs continue raising a lot of money. This adds to the buy side. Boomers are aging, are concerned about
    possible increases in the capital gains tax and so want to sell now. Corporate performance is strong. The stock market is off but companies still make acquisitions. Smaller banks will continue to lend.

To quote the French, the more
things change, the more they are the same. Those who remember 2002 and other periods like this have the confidence
to make wise decisions. Those who know
what they’re doing do it right. For
them, it’s payday. For the unknowing or
under experienced, beware. For them, it
could well be mayday.

# # #

Advertising is dead! Long live advertising!

By Eleanor Haas

As everybody knows, paid media
advertising is declining in effectiveness. Why? Because audiences have too
many options. They have more and more
media to choose among. They are deluged
with messages – to the point of information overload. They have found ways to skip TV ads.  And they are captivated by new kinds of
media, such as You Tube and Facebook.

Three technology-enabled alternatives
to the status quo were discussed this morning by a panel sponsored by the law
firm Frankfurt Kurnit Klein & Selz. The
focus was on who owns creative content and how these ideas are paid for. What the new accepted practices will be will
have to evolve over time. But clearly,
advertising is undergoing a metamorphosis.

The challenge is what it has
always been: how to come up with a
compelling creative concept that will make the cash register ring for a product. Technology has added a new twist. Aren’t ads simply a form of content? Can’t they be interactive games or
songs? How does user-generated content
figure in this as opposed to ads created by professionals?

But once ads become content, the
creative brains behind them take on an importance greater than that of a hired
hand, something comparable to that of a star screen writer or songwriter. That’s when you get into serious questions of intellectual property ownership and compensation.

One new direction comes from, which calls itself “the world’s first online marketplace for buying
and selling advertising, marketing and design ideas.” OpenAd wants to democratize the ad businesses
by enabling students, professional free-lancers and ad agencies to compete side
by side. In addition, it wants to give
creatives a chance to benefit financially from really great ideas that work.

Creatives all over the world who
have registered with OpenAd create ads in response to briefs from ad agencies
or advertisers. Buyers who have enrolled
as OpenAd members get access to diverse creative approaches and can license these
ideas as they use them. Creatives are
compensated proportionate to the value the buyer perceives in their ideas – as
expressed in frequency of use – as opposed to the traditional one-time fee
based on time and materials.

Grey Worldwide has been
pioneering another new direction for at least five years: creating ad content as branded
entertainment. It’s also helping brands
get ownership of songs they use as well as using songs as key branding
tools. The agency becomes the brand’s
A&R consultant, proposing artists and songs as well as their interaction
with the brand. In one ad, for example,
Rihanna plugs both her own album and Cover Girl products in a format
reminiscent of MTV. In another the Black
Eyed Peas chant hip hop lyrics owned by Dr. Pepper to promote sales of Dr.
Pepper soft drinks.

GO Film, a production company,
collaborated with McCann Erickson to produce two music videos by Christopher
Guest that pitch Intel processors through original songs that incorporate
technical terms specified by Intel. The
videos, which were posted on various techie and non-techie Web sites, are
designed to deliver pure entertainment value as a basis for an enhanced brand
image. One video tells a story about a
soft-rock singer – representing Intel software – and a hard-rock singer –
representing Intel hardware – and the pleasure they bring their audience of
office workers.

Advertising is still a message
controlled by a sponsor who is identified and who pays for distribution. But the nature of the message is taking on
radical new dimensions, dimensions that at times seem to erase the line between
entertainment and advertising.  The times they are a’changing!



Israeli Technology Delivers a Brave New World to Advertising

By Eleanor Haas

NY:MIEG, a media information
exchange group, billed the breakfast event as “Cutting Edge Digital Media
Trends featuring Israeli Technology Innovators.” “Cutting Edge Digital Advertising Trends”
would have been more accurate.

What trends

  1. The future of advertising lies in accountability – advertising that can be precisely targeted, tracked and measured – which is to say, digital advertising.
  2. Internet content will be increasingly in full-motion video, not text, as today.
  3. To quote John Dillinger, “I rob banks because that’s where the money is” – and Israeli technology entrepreneurs come to New York City – not Silicon Valley – because that’s where their media customers and financial sources are. R&D tends to stay in Israel.
  4. Mobile is what’s next for interactive advertising. Consumers will be connected through a device that’s always on wherever they are.

  5. For new opportunities, look to services that we pay for at present to be liberated – such as what Jingle Networks is doing to “destroy a fat existing market” for telephone directory services and Skype gives users a way to bypass costly phone networks. It’s likely people will in time be paid to carry a cell phone rather than having to pay for it.
  6. Telecom carriers are afraid of becoming just a pipe, like the ISPs before them, but it’s only a question of how and when the rules of the game change so that they have no choice but to go with a free operating system. Google may well be the catalyst for this.
  7. Out-of-home advertising, once largely billboards, will become increasingly digital and will expand exponentially. (Taxi Tech is one example – I loathe it, as does the man sitting next to me but younger people who have grown used to having in-your-face advertising 24/7 may well take it in stride and make us seem like fossils from a bygone age of more gracious – and private – living.)

Five Israeli innovators told their

  • AlmondNet, Inc., ( has helped pioneer behavioral targeting and profile-based advertising since 1998 – targeting interactive ads to viewers based on a profile of
      past viewing behavior. (I’m sure this works to at least some extent for travel, finance and sports, but they’ll never catch me! My viewing is far too diverse – and seldom in these easily tracked areas.)
  • Pando Networks ( has established a managed, hybrid peer-to-peer content (and ad) delivery
    platform designed to maintain central control of content distribution. It enables viewers to
    multisource online video and music content by downloading Pando’s
    software, which, in turn, makes it possible to use existing content delivery networks (CDNs) to support viewers’ bandwidth. (Napster put control in the hands of viewers, who used it to steal music and video content. Pando gives control to the content owner.)
  • Outbrain, Inc. ( is developing a rating and recommendation platform for blogs and RSS feeds along the lines of what does. (As with behavioral profiling, this just doesn’t work with viewers who have insatiable curiosity about a broad range of subjects.  Amazon’s efforts to entice me with recommendations seem laughable and irrelevant !)
  • Taxi Tech ( developed the touch-screen systems we’ve begun seeing in New
           York City taxis, which track locations through GPS technology, provide destination and weather information (and ads) and enable passengers to pay their fares with a credit card. (You’ve already read where I stand on
    taxi video screens – and if cab drivers don’t have better luck with credit cards than e-commerce vendors have had, it could well be the credit card companies that put an end to this.)
  • Aditall ( makes professional interactive video ad creation, production and delivery cost-effective by automating creation and production and partnering with distribution companies to deliver the ads by demographics and interest to relevant target audiences.  (User-generated advertising! I guess it was inevitable!)

Intel Positions Its New Chip as Eco-Responsible

By Eleanor Haas

“Eco-friendly” comes first in
Intel’s description of its new 45 nanometer processors – “eco-friendly, faster
and `cooler’” is the phrase. That’s good
news for environmentally conscious customers and good business for Intel.

On technical achievement alone,
the new processors are impressive enough for Intel Co-Founder Gordon Moore to
call this the biggest transistor advancements in 40 years. Breakthroughs in manufacturing and materials
boost performance, lower power consumption and open the door to future products
that are even smaller and more cost-effective.

What makes the new chips faster
is Intel’s new manufacturing process, which makes it easier to squeeze
increasing numbers of electronic brains on a chip by shrinking circuitry
dimensions to 45 manometers from 65 manometers – a nanometer is a billionth of
a meter. The new processors are said to
have nearly twice the transistor density of previous chips built on the
company’s 65 nm technology. This brings
the number of transistors up to 820 million for quad-core processors that use
the new formula.

What makes the new chips
`cooler’ and therefore more eco-friendly is Intel’s all-new transistor formula,
which reduces electricity leakage – something that has become an increasingly
serious issue as parts of tiny switches have become smaller and smaller.

Increasing energy efficiency has
become key to IT product design not only because of the environmental benefits
but because of cost savings for users. In addition, environmental friendliness has been mandated by regulatory
bodies around the world.

Whatever the motivation, it’s
good to see environmental considerations the No. 1 selling point.