AdMedia Managing Director Gives 'Executive Perspective' on the Future Deal Market
Media banking and advisory firm AdMedia Partners released their thirteenth annual survey of 1,700 media executives that compiles M&A expectations for the year ahead. Findings indicate that, like the bankers themselves, media executives are urging immediate action on prospective transactions with the vast majority (82 percent) believing the economy will be the same or stronger in 2007. However, for a third year in a row, a significant number (59 percent) of those same surveyed executives note that there will be a shortage of quality available properties. Also of note is the paradox of the online imperative tempered by a general lack of confidence in how Web-based companies are valued. Mark Edmiston, a managing director with AdMedia, explains the issues behind some of the survey's key findings.
How does the survey characterize the executive mindset toward transactions in 2007?
I think this is sort of like the dog that didn't bark. The most notable thing is that 2007 is looking pretty much like 2006 and there's not really a lot of changes in the atmosphere so the macro is pretty stable. Within that, however, there are some interesting changes. One of them being the collapse of newspaper valuations - at least in how [the respondents] are projecting it. Less surprising is the increase in the Internet businesses.
The interesting thing is the historical numbers are pretty accurate. People are pretty close to the market and they know what is going on. So I'm reassured on the one side that in 2007 it doesn't look like there's going to be anything different in terms of the environment that we're all working in. So you can make some plans without contingencies.
Why the imperative to act now?
I think it's more that we don't know what 2008 is going to look like. The big thing about 2008 is that it's an election year. And so it always has been a period of uncertainty, and it's no different this time. Also the economic expansion that we've been on for five years now - everybody is saying it's going to run out of steam sooner or later. That's another factor in there. And basically I think business people can deal with good news and they can deal with bad news, it's no news that is the problem. When you don't know what's going to happen everybody withdraws. If somebody were to ask me for advice, yeah, it's in my own interest to do something, but you really can make plans. This is what the market is, it's going to be this way for the next six or seven months and so if you were thinking of selling or buying, you can work within this environment. Wait till next year? It could be the same, but it becomes more difficult to project.
Why the pessimism on the availability of quality properties in 2007? The volume has been up in the last two years.
There's a lot more on the market but a lot of it has not sold. It's the stuff you don't hear about. They're not terrible companies, they're just not that good or deserving of the kind of prices people are doing. Things are going into the market and then being withdrawn. That's definitely happening - and probably more so than a year ago. And another part of it is the consolidation going on in all these media groups for some time now, with the exception of newspapers which seem to be going in the other way. So the cream of the crop in many cases has come off the table. And it takes a while for new things to mature, so some of the businesses that were launched two years ago it's too soon for them to be in the market.
The executives in your survey understand the importance of Online, but they seem to have trouble with valuations. Why?
Talk about not enough good things around. There's a lot of really interesting Internet businesses out there. But most of them are really small. We're representing a couple of content companies right now and their expectations on price are really quite high. But you can understand it because their growth trajectory is so high. But trying to find a way of actually presenting this to your board of directors is kind of hard.
I think unique users is tending to be, in terms of the asset value, the metric. When you're trying to measure relative asset values the unique users is it because you can't really look at revenue and most of [these companies] don't have any profits. And pages views can be manipulated more.
We're still trying to understand it. We know we have to do something, but we're not sure what that is. And as I say, a lot of these businesses are so small, that [a large publisher], for example, going after a company that has $250,000 in revenue and a great idea, it's hard for them to do because it doesn't move the needle very much. So people are struggling. But there's no question that more of these deals are going to be made in 2007.
Content is going to be acquired by the bigger companies, not only for the businesses themselves, but for the talent. The people who really understand this world are in demand by everybody, and therefore it's hard to hire them. But if you buy their business then you get them. So there's going to be some of that done, too.