Chapter 32 M&A: "I've had a good idea for a long time"

In March 2007, Focus acquired Haoye.This $225 million acquisition, the largest merger in the domestic advertising industry in 2007, was still favored by the industry despite criticism and doubts.This time, the industry jokingly called the merger of Jiang (Focus CEO Jiang Nanchun) and Hai (Allyes CEO Zhu Hailong) merged, resulting in the effect of "killing three birds with one stone": Zhu Hailong's net worth soared, VC earned more than 60 times the return, and Directly help Focus Media span the two most promising new media platforms, outdoor TV and the Internet. Wang Ran, a new media observer, commented: "The acquisition of Allye helps Focus Media enter the Internet advertising market in one fell swoop. This is the best choice next to the acquisition of Sina or Sohu." "Even Alibaba Group CEO Ma Yun said so.

On March 1, 2007, Allyes, an online advertising agency, finally gave up the acquisition offer and IPO plan proposed by more than ten domestic and foreign companies, and switched to Focus Media, which was listed on NASDAQ in the United States. Focus Media announced that it will acquire Allyes, the largest online advertising service provider in China, with US$70 million in cash and US$155 million in Focus Media common stock (each American depository certificate is equivalent to 10 common shares).Since then, Focus has implemented 100% equity acquisition of Allyes, the payment method is about 67.5 million US dollars in cash, and the remaining 157.5 million US dollars will be paid in Focus Media stock; During the period, if Allyes reaches certain revenue targets, Focus Media will pay another $75 million worth of common stock.

As soon as the merger took place, the executives of both companies said that besides the familiarity between the management of the two parties and the company for more than 7 years, Jiang Nanchun was one of the first batch of angel investors in Allyes, and the current Allyes CEO Zhu Hailong once served as the CEO of Focus Media for a short period of time. Talking about the reasons for abandoning the IPO and accepting this transaction, Allyes CEO Zhu Hailong said with a smile: "I am too familiar with Jiang Nanchun to refuse his proposal." In Zhu Hailong's view, as the earliest angel investor of Allyes, Jiang Nanchun is very familiar with the business of Allyes, and can make full use of its "pay for results" advertising model; and Jiang Nanchun is very persistent, "It is better to cooperate with Focus than to cooperate with others", so he finally chose to cooperate with Focus integration.

"We are very familiar, no one knows Haoye better than me!" Jiang Nanchun's words were proved by Zhu Hailong: "There is no need for politeness between us. The two of us can be each other's CEO. He knows my team well, and there is no one in our company’s management that he doesn’t know, and he can call and communicate at any time.” According to our understanding, what is the origin of Jiang Nanchun and Haoye? ?It has been a long time.As early as around 2000, he invested in Haoye as an angel investor.The two companies have been working in the same building on Jiangsu Road in Shanghai for a long time. After Haoye moved out, Focus renewed the lease of the office left by Haoye.

This relationship also helped Jiang Nanchun know all about the conditions offered by Allyes during the merger and acquisition. When Allyes was acquired under his command, the upper limit of the acquisition price was exactly equal to Allyes’ original planned IPO valuation for itself.Even so, the takeover between the two companies came at what was considered the most unlikely time: Allyes was about to land on Nasdaq.In the eyes of the outside world, this seems to mean that the cost of acquisition will inevitably increase. Jiang Nanchun’s explanation is that the two companies had intended to merge on the eve of Focus’s listing, but at that time Focus had already completed the preparations required for listing and was eager to go public, while the preparations for Allyes still needed time, so they gave up. At the end of 2006, Allyes started the listing process, and there were indications that it was expected to land in Nasdaq in early 2007. As a shareholder of Allyes, Jiang Nanchun learned that a foreign company was planning to acquire Allyes at a high price.In order to prevent Allyes from falling to other companies, Jiang Nanchun quickly put forward an acquisition proposal to the board of directors, and reached a deal less than a month later.Zhu Hailong is even more understated: Others think that we have such and such a story, but in fact there is no, it is very plain, almost a matter of course.

Both sides deny that the acquisition would drive up costs. "I can only tell you that what we value is not the price, but the Focus platform." Zhu Hailong said.It is reported that only in terms of price, Focus is lower than the international bidder, but the management of Allyes has a requirement, which is to increase the proportion of Focus stocks in the price. "Although the foreign company's offer is higher in name, it also has future performance indicators attached, but on its platform, these indicators are obviously not as easy to achieve on Focus." A person familiar with the matter revealed.

"Allyes will operate independently, but there will be cross-selling between the two parties." Jiang Nanchun introduced that the first step in the integration of the two parties will be customer integration.He believes that Allyes currently has branches in 6 cities. Compared with Focus’s marketing teams in more than 80 companies across the country, Allyes’ penetration in second- and third-tier cities is still far behind, and the sales channels must be highly permeable. Have an effect. Allyes was established in October 1998, formerly known as Shanghai Allyes Computer Co., Ltd. In October 1999, AdForward, China's first online advertising delivery monitoring system, was launched. In February 2000, received the first capital injection of US$1.8 million from IDG, an international data group, and officially changed its name to New Allyes Information Technology (Shanghai) Co., Ltd. In August 2000, Allyes Advertising Network, the largest online media network in China, was established.

At present, Allyes Advertising has become the largest professional software provider and third-party real-time monitoring company in China.In the survey report of iResearch, the company has always maintained the No. 1 position in advertising revenue among Internet advertising companies in China. In 2006, among the eight companies whose revenue of online advertising agency companies exceeded 100 million yuan, Allyes is powerful. It ranks first and is the largest Internet advertising agency and Internet advertising technology provider in China. It has AdForward software series products covering all aspects of online advertising placement, monitoring, creativity, orientation and effect evaluation, as well as leading rich media in the Chinese market Internet advertising technology.The direct benefit of being acquired by Focus Media is that it can benefit from sharing a large number of advertiser resources held by Focus Media.

At the press conference, Allyes CEO Zhu Hailong became the target of people's pursuit.After struggling for 7 years to turn Allyes into the largest online advertising agency in China, he sold Allyes on the eve of IPO. Why did Zhu Hailong make this decision?Previously, in addition to Focus, no less than ten domestic and foreign companies tried to acquire Haoye at various prices, but the price offered by Focus was not the highest among them. Zhu Hailong told the "Daily Economic News" that after the completion of the acquisition, his position and Allyes management team will remain unchanged.In fact, Zhu Hailong has reached a new employment agreement with Focus, and will continue to serve as Allyes CEO in the future.

It is worth noting that, unlike the cash-out practice of executives in other M&A cases, Zhu Hailong insisted on completing the transaction by holding shares in Focus.Zhu Hailong did not disclose how much equity he acquired in Focus in this transaction.In addition, data shows that Allyes’ revenue in 2006 reached 500 million yuan, while Focus’s figure was about 1.86 billion yuan. In other words, after the merger of the two, the revenue brought by Allyes will account for about 25% of Focus after the merger.Even excluding factors such as VC and other strategic investors and additional dilution, Zhu Hailong's stake in Focus is enough to make his value skyrocket.

Every time a VC participates in an M&A transaction, someone always helps calculate how much the VC has earned, and this time it is even more exciting. In this transaction, all the stocks paid by Focus to Allyes are newly issued stocks.After the acquisition is completed, all venture capital shareholders will withdraw from Allyes, and in addition to receiving some cash, they will also hold shares in Focus Media.Before Allyes was acquired by Focus, IDGVC acquired a total of 31.5% of Allyes’ shares through two consecutive capital injections, becoming the single largest shareholder of Allyes. Based on Allyes’ purchase price of US$225 million, without considering the impact of stock price changes, IDGVC’s return on Allyes’ 7-year capital journey will exceed US$70 million.At the same time, since the valuation of Allyes in the second round of financing has already exceeded US$100 million, Zhang Suyang, a partner of IDGVC, confidently stated publicly that "IDGVC's return on the first round of investment in Allyes will conservatively estimate that it will exceed 50 times."Another major institutional investor, OAK, obtained an internal rate of return (IRR) close to 100% after investing in Haoye for one year. In this "marriage", IDGVC contributed a lot, and it finally made a lot of money from it.Zhang Suyang admitted that it is conservatively estimated that his investment income is at least 60 times.At the same time, IDGVC has also acquired a large number of Focus stocks, "We are optimistic about the prospects of Focus, and hope to get more shares in Focus and make more money." Generally speaking, venture capitalists are more inclined to promote the IPO of the companies they invest in, but IDGVC has single-handedly promoted the "marriage" of Focus and Allyes.Zhang Suyang said that the reason for the transaction between the two is mainly based on two points: one is that Focus has shown a high success rate in the previous rounds of integration; The interactive cooperation with the next advertising can establish a new market competitiveness.Zhang Suyang said frankly that another reason is that "after participating in Focus, you can make more money."Previously, IDGVC had invested in Haoye twice: the first phase investment was 2 million US dollars, and the second phase investment was a joint investment of 30 million US dollars with OAK. However, Zhang Suyang does not agree with the widely circulated statement that IDGVC is the biggest winner. "The shares held by Allyes' founder team are several points more than ours."According to Wang Jiangang, one of the founders of Allyes, the monthly income of the other three founders was not as high as the monthly salary (RMB 5,000) given by IDGVC before starting Allyes full-time. The return obtained by the entrepreneurial team in Allyes even exceeds that of its largest shareholder IDGVC, and far exceeds that of Allyes' largest cash investor. "What makes Allyes different from other start-ups in China is that entrepreneurs, investors, and professional managers have a clear division of labor, and they each do what they should do." The "professional managers" mentioned by Zhang Suyang refer to those led by Zhu Hailong. Good yay management team.Since Wang Jiangang was young and lacked management experience, one of the prerequisites for IDGVC to invest in Haoye was to find professional management personnel. "Even from the second half of 1999, Zhang Suyang and his colleagues helped Haoye to do The job is to find people." "Our management team owns more than 15% of the shares of Allyes." Zhu Hailong's expression showed satisfaction.The shareholding ratio of the Allyes management team is not only much higher than the average level of management shares held by Nasdaq China concept stocks, but also much higher than the shareholding ratios of most domestic corporate managers. After Allyes was acquired by Focus, IDGVC, as a financial investor, not only obtained about 25 million US dollars in cash, but more importantly, obtained the smooth exit channel brought by Focus; The identity of the founders has also changed from a shareholder of a private company to a shareholder of a listed company. "'The Confluence of the River and the Sea' can make the Internet advertising industry have infinite reverie." After the merger and acquisition of Allyes by Focus, Alibaba Group CEO Jack Ma said so.Not counting the potential intangible amortization arising from the acquisition of Allyes, the transaction between Focus Media and Allyes is expected to increase Focus Media's earnings per share in 2007.Through this transaction, Focus Media will enter the fast-growing Internet advertising market in China. "Focus does have plans to focus on the Internet." Jiang Nanchun said frankly that this is the future development trend of the Internet, and Internet advertising will occupy an important position in the entire Focus structure.Jiang Nanchun also admitted that he "has a certain interest" in the Internet, and has made "very small investments" in a number of Internet companies in his own name. "The audience is at the elevator entrance of the office, holding a mobile phone in his hand. When he sees the new car advertisement on the LCD, he can send a text message to the SMS number displayed on the LCD advertisement at any time to get the information of the advertisement, or the price of the car. The dealer’s phone number.” This is Jiang Nanchun’s idea, “He can also directly connect to the product website through the computer to get more information, and his reply can also get opportunities such as lottery draws and test drives, which will also improve the effectiveness of building advertisements. " In addition to the appropriate purchase price, the greater strategic value of the acquisition of Allyes to Focus is: with the help of Allyes, Focus has stepped into the Internet advertising market that it has always coveted but never had a chance to get a share of. Before the end of 2006, after the successful acquisition of Frame Media, Juzhong Media, and Beijing Kaiwei Advertisement, Jiang Nanchun still had two pure blue plates in his life circle media group strategy: the fast-growing Internet advertising market and the huge stock Value of the Digital TV Advertising Market. "Allyes is a marketing value-added service provider based on core technology, and it will fill an important position for the media extension of Focus's life circle." Jiang Nanchun said, "Focus has covered a large number of life time, space and trajectories of consumers, but there are Two important advertising contact points have not yet been entered, one is TV advertising and the other is Internet advertising. The acquisition of Allyes by Focus is a strategic acquisition and an important improvement for Focus’s life circle media group. Strategically speaking, The acquisition of Allye not only extends Focus Media’s life circle to cover the time and space when the audience is in contact with the Internet, but Allye’s targeted advertising system based on Internet users’ browsing habits will also help Focus Media better meet the precise needs of advertisers.” And this It will help New Focus get in touch with high-end consumers in cities and establish connections with them based on their life cycle and consumption behavior. "We believe that by combining Allyes' behavior-based online advertising solutions with our existing advertising products, Focus Media will provide advertisers with more comprehensive media solutions and improve their return on investment." The acquisition of Allyes has enabled Focus Media to enter the Internet advertising market. Jiang Nanchun believes that this has become more and more important to Focus Media. "The increase of Internet users and increasing dependence on the Internet now make him more and more dependent on the Internet in the way of obtaining information." In fact, the high growth of Allyes is also a threat to Focus, and through mergers and acquisitions, Focus not only It has consolidated its position as the leader of China's advertising, and also obtained a new profitable business line.According to data from iResearch Consulting, in 2006 China's Internet marketing reached 6 billion yuan, including 4.66 billion yuan in Internet advertising.According to data from China Internet Network Information Center in January 2008, the concept of China's online advertising market exceeded 7 billion yuan in 2007, with a growth rate of more than 50%. Professional institutions predict that this market will maintain a growth rate of more than 30% in the future.It is estimated that by 2010, China's Internet advertising market will expand to 23 billion yuan. "Allyes is an innovative leader in China's online advertising market, and Allyes' model reflects the new trend of online advertising." Regarding online advertising, Zhu Hailong has his own point of view, "I believe that rich media advertising will become online advertising And Allyes' dominant form, with the strengthening of our technology and the expansion of coverage, has become the leader in the Chinese market. The difference between online media and traditional media is mainly reflected in differentiation and interaction. Allyes' applications provide behavior-based solid Foundation. By aggregating a large number of independent website spaces, Allyes has established a large-scale, highly interactive media advertising network. This network provides targeted advertisements through browsing behavior, and the interactivity of the Internet also allows advertisers to directly link advertisements with Expenditures linked." Chen Hong, chairman and CEO of Hanergy Investment, is also very optimistic about this merger. He believes that according to the acquisition characteristics of Focus Media, each merger will add a resource business, and resource business is usually easier to integrate.Huang Shengmin, dean of the School of Advertising, Communication University of China, also said that the Internet is a new type of media, and its high degree of marketization leads to more transparent assets, which do not involve existing policy, cultural and ideological conflicts, which will also greatly reduce problems in integration. Through the acquisition of Allyes, Focus Media has obtained advertising publishing technology solutions (AdForward system), media services that are advertising agencies (Media Services) and China's first online marketing network platform (Smart Trade system) that is billed by performance.Allyes' unique technology and business in the field of Internet advertising will help Focus Media meet advertisers' requirements for precise delivery. In the longer term, what Jiangnanchun needs to solve is to provide more advertising and marketing models, that is, the interaction between mobile phones, LCD screens and computer monitors to promote the growth of advertising effects.Internet veterans believe that the acquisition of Focus will bring more advertising combination models. In the future sales advertising process, it will be able to "package" buildings, store terminal advertisements and Internet advertisements to present to customers. Some analysts believe that Focus Media and Allyes complement each other in the advertising industry and can greatly promote the online advertising business. Although their current competitors are small and difficult to form a monopoly in a short period of time, their strength cannot be ignored. Undoubtedly, Focus Media will become another new important force in the Internet field after the acquisition of Goodye. At this time, the Internet advertising market presents new features, that is, there are typical representatives in various fields: such as Sina, which represents online media brand advertising, Baidu, which represents search engine advertising, and Focus, which represents advertising agencies. "Focus will bring a new pattern and vitality to the online advertising market." The acquisition of Allyes by Focus can achieve the integration of advertising resources on different platforms, and facilitate the unified launch of a cross-platform advertising service integration solution that is more attractive to advertisers.Therefore, Focus Group's new strategy of entering online advertising will undoubtedly have positive promotion significance for the entire online advertising market. iResearch believes that this will bring more vitality and even innovative business models to the entire Internet advertising market. Although people think that Focus's acquisition of Allyes is nothing more than Focus's move to expand business channels.However, when Allyes was acquired by Focus Group, it became a combat unit of the Focus Advertising "aircraft carrier". Focus pointed out the future development direction for it at a higher strategic level and maximized the value of its resources.If we say that the communication media in Focus’s buildings, supermarkets and other occasions is traditional “carpet bombing”, then Focus’s acquisition of Allyes is preparing to use the new weapon of online advertising to equip itself to become an all-round advertising “carrier” involving various fields. ".In fact, after the integration, Focus has successively made multiple and divided layouts in the technology, research and business fields of Internet advertising through acquisitions and cooperation, creating a Focus Internet advertising platform with advantages in technology and value-added services.Focus Media's audited financial report at the end of the second quarter ended September 30, 2007 showed that Focus Media's Internet advertising revenue increased to 340 million yuan, accounting for more than 27% of the group's total revenue, an increase of 64% over the previous quarter. The rapid growth of this sector after Focus Media acquired Allyes is outstanding. "Because of the high degree of consistency between Allyes and Focus Media, today's merger behavior has become very clear." Focus Company said that interactivity and precision are the common characteristics of mobile and Internet advertising. In this regard, Allyes has technical expertise is what it values.Allyes' Internet advertising publishing and monitoring software accounts for 80% of the third-party online advertising monitoring market, and can accurately place advertisements in front of matching consumers.Today, Allyes' technology can directly connect with Focus's mobile advertising business.Obviously, the acquisition of Allyes to seize the advertising carrier of the Internet will undoubtedly have "revolutionary significance" in building and perfecting the new media horizontal strategy for Focusun, which is good at leveraging strength, reorganizing resources, and using it for my own use.