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According to Peachtree Media Advisors M&A and capital-raising activity in the social network space all but disappeared in 2009.  Specifically:

  • The volume and dollar amount of M&A deals fell over 50% and 70%, respectively.
  • Capital raising "fell off a cliff."   Specific numbers for this year were not released, but we interpret this to mean that beside DST's $200 million investment in Facebook, this number was close to zero - down from about $600 million last year.

Peachtree Social Media Deals

Some of this is due to the weak economy, but we think it largely has to do with the fact that Facebook and Twitter are emerging as the only social networks that can grow and sustain a profitable business at scale.

For example, total digital media M&A fell at a much slower rate of 10% and capital raises actually increased by 16% versus 2008.  So, the overall digital media industry weathered the storm far better than social media.

As Facebook approaches a $1 billion run-rate we expect this trend to continue throughout 2010.  Venture funds will be less willing to fund social-network startups and companies will be less willing to buy existing ones.  Portals and publishers should also take notice as Facebook is attracting more and mjore advertisers.