Focus Media is making the acquisition to enter China's growing internet advertising market and further diversify the advertising medium through which is reaches consumers. It will acquire 100% of Allyes equity for $70 million cash and $155 million of Focus Media shares, based on a price of $77.62 per ADS (with each ADS representing 10 Focus Media shares). Focus Media will pay an additional $75 million in shares, valued at the same price, if Allyes meets pre-defined earnings targets for the 12-month period from April 1, 2007 to March 31, 2008. Focus Media will issue new shares to Allyes shareholders.
Jason Jiang, founder, chairman and CEO of Focus Media, says: "We believe that by combining Allyes' behavior-based advertising solution for internet audience segmentation with our existing advertising service offerings, Focus Media will deliver more comprehensive media solutions to our advertisers.ö
Allyes is an internet advertising agency and a provider of internet advertising technology in China, operating since 2000. It owns a proprietary software application suite, 'AdForward', which covers online ad publishing, creative production, tracking, targeting and performance analysis. It has also accumulated a database of internet viewers, segmented based on individual behavior. Allyes has raised private equity funding from IDG Technology Venture Investment and Oak Investment Partners. It is also speculated that Jiang has an investment in Allyes.
As of December 31, 2006, Focus Media had approximately 124,000 display units (85,300 in commercial locations and 38,700 in stores), 99,700 advertising poster frames installed throughout China and 200 outdoor LED displays in Shanghai with over 3,000 advertisers using this network.
Focus Media is growing very quickly, spurred along by the boom in consumer spending in China. For the year ended December 31, 2006 it booked total revenues of $213.3 million, up 212.6% (compared to $68.2 million in 2005), on which it earned an operating income of $79.0 million.
Analysts comment that Focus Media commands a far lower advertising rate in China's tier-two cities compared to the metros, with the bulk of revenues still derived from China's main cities. This reinforces the potential for Focus Media to grow on the back of higher penetration in smaller cities, which are becoming key to advertisers.
Focus Media was on an acquisition spree in 2006, concluding four deals including Target Media. Target Media was in a similar business to Focus Media and the takeover cemented Focus Media's standing as number one in the industry.
The company has also been a regular in the capital markets with venture capital investors taking the opportunity to cash out of a lucrative investment. Most recently, in January, Focus Media sold a combination of old and new shares in a $529 million deal. The $115 million raised from new shares issued was intended to be deployed in acquisitions. Allyes is the first acquisition announced by Focus Media in calendar 2007 but is unlikely to be the only one.
Morgan Stanley advised Allyes.
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