It was May, 2005, and MySpace was in trouble. Despite its runaway success in social networking, New York State Attorney General Eliot Spitzer was investigating its parent company, Intermix Media Inc. Its stock was in free fall, and several potential buyers had walked. Searching for a fix, the bedraggled board invited in Michael J. Montgomery, a Santa Monica investment banker, who came bearing unexpected news: Rupert Murdoch's News Corp. (NWS) might be interested in buying the company. "We said: 'Are you kidding? News Corp. doesn't want to get into the Internet,"' Richard M. Rosenblatt, at the time Intermix's chief executive officer, recalls telling Montgomery.
Six weeks later, News Corp. agreed to pay $580 million in cash for Intermix, propelling News Corp. into the Internet stratosphere. It also propelled the fortunes of Montgomery & Co., a little-known investment firm that quickly became one of new media's hottest brokers. Headed by former Walt Disney (DIS) Treasurer Michael Montgomery and his older brother, James, a former defense industry and technology consultant, the firm has helped sell new-media startups to heavyweights Sony (SNE), Viacom (VIA), and Yahoo! (YHOO) in the past two years. "Those guys have become the go-to guys after their experience with MySpace," says Blair Harrison, chief executive of iFilm Corp., the user-generated video site that Viacom bought for $49 million shortly after the News Corp. deal. Harrison says he hired Montgomery after he heard of his MySpace work. (The firm, which collected $3 million for the MySpace deal, eventually shared the assignment with San Francisco's Thomas Weisel Partners.)
As with just about everything else on the Net, a new kid on the block is shaking up the traditional players -- in this case, media investment powerhouses like Goldman Sachs (GS) and Allen & Co. Those firms still get plenty of business, but what Montgomery sells is speed, rare in the clubby media world where talks can drag on for months. He set up meetings with prospective buyers for iFilm within 36 hours, says Harrison, and helped strike a deal within three weeks of that.
SEARCHING FOR COOL
Montgomery is himself a media veteran. As Disney treasurer, the 51-year-old helped arrange film financing deals and a rescue package for ailing Euro Disneyland. He left Disney in the early 1990s to help raise $1 billion in equity toward the launch of DreamWorks Animation SKG Inc. (DWA), where he recently joined the board. All the experience has given Montgomery an impressive set of speed-dial numbers. At Disney, he was friends with Michael Lynton, now chairman of Sony Pictures Entertainment, which in late August paid $65 million for Montgomery client Grouper.com, a user-generated video site.
To stay current in the new-media scene, Montgomery has hired a small group of investment bankers in their 30s and younger to scour the Net and hunt for cool blogs. "We go to a lot of conferences, try to get there before the big guys," Montgomery says. The company also holds the annual Montgomery Technology Conference, which this year drew 140 money-seeking startups. "They've taken the right approach," says Atom Entertainment CEO Mika Salmi, who opted not to use an investment banker when he recently sold his video/gaming business to Viacom. "They get in there early and get to know the CEO on a personal level before he needs an investment banker," Salmi says.
Of course, the large media bankers have far deeper pockets. Allen & Co. courts the likes of YouTube Inc. executives at its media glitterfest in Sun Valley, Idaho, and helps finance startups such as Internet-TV service Sling Media and online video service company Brightcove. With a smaller fund, Montgomery recently invested in SpecificMEDIA Inc., a fast-growing Irvine (Calif.) online advertising company. The trick is to know which sector will be hot next. Right now, Montgomery is betting on content for wireless devices. Then again, so are the big guys.
By Ronald Grover