INTERNET & DIGITAL MEDIA SECTOR REPORT Q3 2019 EXECUTIVE SUMMARY Q3 2019 Internet & Digital Media Wrap-Up » Internet & Digital Media continues to be a highly active category, with ~$34.5Bn in M&A volume (including the $20.9Bn Viacom-CBS merger) and ~$12.9Bn in financing volume during Q3 ’19 - 15 M&A transactions in Q3 ‘19 as varied as: Vista / Acquia (CMS); Prudential / Assurance (Insuretech); Vox / New York Magazine; Hasbro / eONE - 688 financings across all stages -- from seed to LBO – in Q3 ’19 consistent with the similar volume in Q3 ’18 » Financial sponsor-backed M&A and financing activity remains healthy in the category as firms look to deploy capital and back innovators and market leaders, especially leading digital brands - Vista Equity continues its strong pace of investment with its purchase of Acquia, an open digital experience company, in its third billion dollar deal in the last 12 months - Growth equity investment continued in Q3 including Sequoia’s investments in Stripe and Thumbtack and TCG’s investment in Food52 » Q3 public capital markets activity saw 22 VC-backed IPOs, dominated by technology-based D2C companies including Peleton and SmileDirectClub; the number of VC-backed U.S. unicorns remains at a record high » From a trading perspective, Marketplace companies lead the public company pack, trading at 7.1x EV / ’19E Revenue and 21.3x EV/ ’19E EBITDA on average Select Q3 Active Buyers Select Q3 Active Investors TCG Notes: Sources: Capital IQ, PitchBook, PriceWaterhouseCoopers / NVCA MoneyTree Report, Wall Street Research. 2 GCA OVERVIEW Strong Sector Expertise across Internet & Digital Media Team REPRESENTATIVE FOCUS AREAS GCA SECTOR TEAM MARKETPLACE / DIVERSIFIED MARKETING JOHN LAMBROS NEW TECHNOLOGY TECHNOLOGY Managing Director [email protected] +1 (212) 999-7083 INTERNET COMMERCE HR TECHNOLOGY JOSHUA WEPMAN Managing Director INTERNET CONTENT SOCIAL MEDIA [email protected] +1 (212) 999-7092 SEARCH & ONLINE GAMING ADVERTISING KEVIN WALSH Managing Director [email protected] MEDIA / ENTERTAINMENT PUBLISHING +1 (415) 318-3629 RECENT TRANSACTIONS 3 GCA OVERVIEW Selected Recent Internet & Digital Media Transactions Notes: (1) The above transactions represent a compilation of past and current deals that GCA entities, including GCA Advisors, LLC, GCA Corporation, and GCA Altium, have advised on. 4 SECTION I MARKET SNAPSHOT: DIGITAL BRAND EVOLUTION 5 DIGITAL BRAND EVOLUTION It’s Been a Busy Autumn Multiple recent transactions in digital content highlight the increased consolidation in order to improve scale and brand awareness… Acquired by Majority investment by Acquired by Acquired by TCG September 2019 September 2019 October 2019 October 2019 ~$100MM $83MM ~$400MM ~$300MM “We have drawn inspiration “…Food52 has achieved the “This is an expansive moment “POPSUGAR hugely expands from Vox, watching their ultimate measure of for independent media, we will our reach within an important growth trajectory and success success in digital media and not allow a rapidly demographic, bringing us a in developing premium built a brand that consolidating media ecosystem community that deeply loves editorial brands and leading consumers care deeply to constrict young people’s the POPSUGAR brand…” the industry in podcasting and about.” choices or their ability to freely -Ben Lerer, CEO, Group Nine entertainment.” - Mike Kerns, President, TCG express themselves.” - Pam Wasserstein, CEO, NY Media - Nancy Dubuc, CEO, Vice Notes: Sources: Capital IQ, Pitchbook, Wall Street Research, Company Websites, Press Releases, SEC Filings. 6 DIGITAL BRAND EVOLUTION What Have We Learned DIGITAL BRANDS DRIVING INTRINSIC VALUE » Effective digital brands must create an identity and a voice that drives meaningful community engagement with their audience across all channels » Especially in the current media climate, consumers look for brands they can trust IMPORTANCE OF STRONG AUDIENCE IDENTITY AND LOYALTY » An emergence of vertically-focused category leaders has led to higher quality content – sometimes narrower and deeper in scope – and stronger communities for enthusiasts, be they readers or shoppers or both » Successful digital brands are cultivating these passionate audiences and creating a loyal and engaged following BROADER MONETIZATION OPPORTUNITIES » Digital brands are building loyal followings across a variety of different business models » The deeper the audience engagement the greater the variety of monetization opportunities » Next-gen media models will master premium advertising, affiliate, direct-to-consumer commerce, licensing, marketplace, and experiential channels IMPACT OF DATA REVOLUTIONIZING BUSINESS MODELS » Maybe as important as content quality, data is the core currency of all digital business models » Brands need to leverage audience data with data science and machine learning to enhance personalization, drive engagement, and boost activation » Data allows brands to monitor key metrics such as customer acquisition cost (CAC) and lifetime value (LTV), as well as increase retention SCALE MATTERS » Brand perception and value is measured by revenue, audience, engagement, followers, likes, LTV, etc. » Scale gives digital brands the ability to compete in a market dominated by Google, Facebook, and Amazon 7 DIGITAL BRAND EVOLUTION The Increasing Importance of “Total Monetization” 4) RETENTION & GROWTH 1) QUALITY CONTENT DISCOVERY Reader returns to platform to Top-of-funnel “free” content that hooks an audience and consume more content and buy helps build relationships products over and over again – true brands grow through virality of loyal users and word of mouth 2) ENGAGED & LOYAL COMMUNITY THE DIGITAL Brand identity persists on all social platforms, allowing MEDIA JOURNEY audience members to interact with the brand and its followers 3) CONVERSION & MULTIPLE MONETIZATION Commerce Related Monetization occurs through subscription Advertising content, events, eCommerce, affiliate, and Sponsored advertising services Content 8 DIGITAL BRAND EVOLUTION Macro Trends Driving the Importance of Brand Identity in an Increasingly Crowded Digital Landscape DAILY HOURS SPENT ON DIGITAL MEDIA PER ADULT USER, USA (1) « The average adult spends 6+ hours a day engaging with digital media, over half of which is via smartphone 1) 6.3 6.0 5.7 5.4 0.7 « Given massive consumption of media and increasingly 5.1 0.4 0.6 4.9 0.4 crowded media landscape, content providers must figure 4.4 0.3 0.3 2 out ways to differentiate their offering 3.7 0.3 2.2 2.1 3.2 2.2 2.2 3.0 0.3 2.3 2.7 « Brand identity is more important than ever as companies 0.4 2.5 0.2 0.4 compete for eyeballs and wallet share 2.6 3.3 3.6 2.2 2.3 2.4 2.8 3.1 2.3 2.6 « 86% of consumers say authenticity is important when 1.6 4) 0.8 deciding what brands they like and support 0.3 0.3 0.4 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Mobile Desktop / Laptop Other Connected Devices « Younger audiences consume media via smartphone at a 2019 DEVICE USAGE FOR DAILY NEWS CONSUMPTION BY AGE GROUP (2) higher rate and expect a seamless experience across devices 45% « Strong brands can more easily transition their story across 39% platforms including OTT, mobile, and social 30% FACTORS INFLUENCING BRAND STRENGTH (3) 22% 19% 18% 19% 13% 12% 11% 8% 9% 5% 4% 4% Geography Demographics Brand Product Ecosystem Smartphone Desktop Print Radio TV Maturity Categories Readiness 18-24 25-34 35+ Notes: (1) Scribd 2019 Internet Trends Report (2) Reuters Institute & University of Oxford Digital News Report (3) Accenture Strategy To Affinity and Beyond 4) Stackla Data 2017 Consumer Content Report 9 DIGITAL BRAND EVOLUTION Significant M&A and Fundraising Activity for Category Leading Digital Brands $MM $340 $3,500 $933 $340 $200 $258 ~$100 ~$300 M&A $4,100 $110 Undisc. $3,100 $1,370 $110 $845 ~$400 2018 2019 Series C Series D Series B IPO Series B1 IPO IPO IPO $50 $100 $30 $885 $25 $2,340 $8,100 $1,200 Financings Majority Series C Series C Series D Series D Series E IPO Investment $160 $30 $100 $100 $1,100 $300 $83 A flurry of M&A and financing activity since 2018 signals increasing investor Series D Series C and buyer interest in leading brands across various sectors $200 $319 Notes: Sources: Capital IQ, Pitchbook, Wall Street Research, Company Websites, Press Releases, SEC Filings. 10 SECTION II Q3 MARKET UPDATE 11 DEAL DASHBOARD 2,185 $41.4 Billion $72.1 Billion 42 2019 Financing Transactions (1)(2)(3) 2019 Financing Volume (1)(2)(3) 2019 M&A Volume (3)(4) 2019 M&A Transactions (3)(4) Select Q3 '19 Financing Transactions Quarterly Financing Volume ($Bn) (1)(2) Quarterly M&A Volume ($Bn) (4) Select Q3 '19 M&A Transactions Company Amount ($MM) $20 $80 $65 Acquirer Target EV ($Bn) $15 $15 $13 $13 $13 $13 $875 $15 $11 $12 $12 $60 $20.9 $35 $10 $40 $29 $28 $30 $20 $14 $17 $323 $5 $20 $13 $4.5 $0 $0 $300 $3.5 $300 Quarterly Financing Deal Count (1)(2) Quarterly M&A Deal Count $2.3 $250 $1.0 1000 847 745 796 783 787 40 32 32 671 690 710 688 800 25 $225 30 $0.9 600 17 20 14 16 16 15 400 11 $150 200 10 $0.6 0 0 $83 $0.1 Last 12 Months Digital Media & Internet Price Performance (5) 145.0% 125.0% 13.0% 12.2% 11.0% 10.3% 105.0% 9.1% (2.1)% (8.0)% 85.0% (6.1)% (10.1)% 65.0% Oct-18 Dec-18 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Marketplace / Search / Online Media / Diversified Social Media Internet Content Internet Commerce Gaming Publishers New Technology Advertising Entertainment Marketing Notes: Sources: Capital IQ, PitchBook, PriceWaterhouseCoopers / NVCA MoneyTree Report. 1) Criteria based on U.S. internet/mobile/telecommunications Series A and subsequent rounds of financings. 2) Financings include Venture and Private Equity Growth/Expansion activity for U.S.