Catcha-Says merger to change digital advertising game
By Gabey Goh May 22, 2013
- Respective CEOs were friends for some time; similar visions made it only a matter of time for a merger like this
- Media agencies welcome move, expect merged entity to be potential game-changer in digital advertising space
THE recent announcement that Catcha Media Bhd has entered into a term sheet agreement to merge certain assets with Says Sdn Bhd, the owner of Says.com, may have come as a surprise to many, but not to the two men behind the deal.
In an interview with Digital News Asia (DNA) following the announcement, Khailee Ng (pic), Says founder and chief executive officer, said that it was only a matter of time.
“Patrick [Grove] and I have been friends and been in the scene for a while -- it was only a matter of time before we worked together on something," he said, referring to the Catcha Media founder and CEO.
"The process didn't take too long, a handful of weeks perhaps? Both of us share the same culture of moving fast and moving boldly, so it came together very nicely,” Ng said.
Says.com is a crowd-sourced content platform that leverages active social media users to curate and share trending news items, paying them when they broadcast advertiser-sponsored content. It currently boasts a portfolio of clients which includes Nike, Coca-Cola, Unilever, Maxis and Nestle.
The proposed merger will see the formation of a wholly-owned subsidiary called NewCo, which will house Says along with Catcha Media’s digital and publishing units -- which the latter claims currently reaches 9.78 million Malaysians a month -- and a portfolio of 15 magazine titles.
The proposed merger is valued at RM60 million, and under the deal, Catcha Media will be entitled to 35 million shares to be issued by NewCo while Says, which is owned by Youth Asia Sdn Bhd, is set to receive RM6 million in cash and 15 million shares.
According to Grove, the merger value was based on the earnings of both companies and what they potentially could have been if both companies had been a single entity throughout the 2012 financial year. This is an acceptable valuation method with Grove sharing that a PE (Price Earnings) ratio of 10 was applied for the RM60 million valuation.
[Updated to add PE ratio]
“We are both just super excited to finally work together with a game-changing offering to our clients and advertisers. Content is king and social is the future, so the fit is perfect,” said Grove when asked for his take on the development.
He reported that the deal should take about two months to finalise as Catcha Media Berhad is publicly listed and will need to undergo vetting from Bursa Malaysia and the Securities Commission.
According to a Bernama report which quotes from RHB Research, the merger could potentially quicken Catcha’s turnaround.
"Based on a study by our source, Says.com is profitable and has an annual net profit ranging from RM1 million to RM2.5 million per annum. Post-merger, Catcha Media will hold a 70% stake in Says.com, which we think will boost the former's earnings," said the research house.
Ng noted that potential synergies are manifold when “you put leaders in social content distribution, leaders in content creation, and an advertising network that reaches 9.78 million Malaysians” together.
“Beyond that, it is also about two entrepreneurs and their passionate and driven teams coming together to build the future of media and advertising,” he added.
Ng said that advertisers are always excited to use Says.com to get their branded content shared on social media. In some cases, the advertisers would request for the company to create the content, which the team would need to decline because of its "laser focus and expertise in the distribution of social content."
On the flip side, Catcha Media's publishing unit has always been in the business of creating custom content, and in many cases, entire content channels and magazines for advertisers.
“At the same time, they are also frequently requested to integrate social media-centric solutions into the fold. The more we talked, the more opportunities we saw. That's when we knew that our shared vision for the future of advertising had to be acted upon,” said Ng.
Next: Media agencies weigh in on proposed merger
A smart marriage
The deal has also caught the attention of media agencies, with Tommy Tan, media group head for MediaVest, calling it a “brilliant partnership” in this emerging market, and also a demonstration of the growing importance of content creation and digital distribution.
“It seems a smart marriage,” said Andreas Vogiatzakis, managing director of the Omnicom Media Group (OMG) when asked for his take on the deal.
He noted that Catcha has plenty of content and Says has a large social community base, which is the perfect brew of content plus social, equating to social content curation.
“When it comes to sharing, social media users have gotten smarter; many no longer post Facebook statuses about what they ate. Instead, they are using social networks to share their passions, ideas, and content they love. The recent general elections was the best showcase of this explosion,” he added.
Despite the oft-stated importance of digital channels in marketing efforts, digital marketing spend remains relatively low in Malaysia.
In 2012, out of a total of RM7.1 billion in advertising expenditure recorded, Internet ad spend accounted for RM203 million or 2.83% of the total. However this figure is expected to rise in the coming years as more brands shift their attention, and money, to the digital realm.
According to Vogiatzakis, the reason for traditional media still commanding the lion’s share of spend is due to the fact that most Malaysians spending more time online are from key urban cities such as Kuala Lumpur, Penang, Johor and Selangor.
“In the rest of the states (suburban/ rural areas) it’s still marginally higher towards mainstream media. This is why brands still cast a wider net to reach and cover all the masses when it comes to their marketing mix,” he said.
Another reason put forth by MediaVest’s Tan is the fear many people have toward change.
“Clients especially find security in habit, and change requires adjustment or adaptation to a new environment where everything seems different. That said, many brands have ventured into the digital space, albeit each at their own pace, and it is a healthy sign for the industry,” he added.
Tan added that moving forward, he believes advertising will be less about messages and more about content curation, creation and distribution, and increasingly about utilities and services.
“Hence, as more brands start to focus on creating experiences, we are excited about the merger and new ways to tell stories, engage and deliver value to consumers,” he said.
When asked about whether the merger would see some overlap and possible direct competition for the same digital advertising pie, Says' Ng said it would not.
“Absolutely not, because we're providing a big piece of the puzzle as a media solution, but the advertising agencies and media agencies are our partners in putting these pieces together,” he said.
Tan also agreed with Ng’s assessment of the eventual role the new company will play in the advertising landscape.
“They will definitely be a partner to media agencies. The nature of the media business puts focus on communication management and optimisation, which sees us reaching out constantly for partnership and collaboration,” he said.
Next: A sign of things to come?
Start of consolidation wave?
Youth Asia, parent company of Says, is an investee of Teak Capital, a technology-focused venture capital management corporation.
Teak Capital managing director Chok Kwee Bee tells DNA that the merger was an opportunity to take Says “to the next level.”
“Teak's focus has always been to groom leaders with high potential to realise that. Khailee [Ng] and his team at Says have created a formidable high-growth business in a competitive space.
"Teak is proud of what they've achieved so far, and will continue to offer guidance when called upon, while focusing on grooming and investing in the next generation of successful startups,” she said.
Chok added that the high-growth opportunity is not in traditional media, as consumer habits are predominantly and increasingly going digital. The consumer shift has happened so quickly that the market needs more holistic and effective solutions in the digital realm, she argued.
“That being said, strong media brands like Catcha Media [and its] 15 print magazine titles have a loyal following, and the idea of using that as a springboard to further dominate digitally is also part of why the deal is exciting,” she said.
Chok said that she believes traditional media will always have its place. “That being said, digital spending in every country around the world is going only one way -- up. This is why we invest in digital opportunities,” she added.
When asked whether this proposed merger between two rising Malaysian companies could signal the start of a larger wave of consolidation, Chok said it was possible.
“I foresee more mergers and consolidation taking place amongst startups and SMEs (small and medium enterprises) in the next two years. This will be positive for the market, as we need to see bigger companies from Malaysia which can go regional,” she said.
“I've been working with many founders and I have seen great business grow and succeed. In the end this is not about 'digital' or 'traditional' -- it's about two driven entrepreneurs joining forces to build a profitable, sustainable, fast-growing business, and that is what investors want more of,” she added.
Catcha Media subsidiaries in RM60mil merger with Says.com
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