By all accounts, 2006 was a year for the record books when it came to magazine publishing company M&A. Whether transactions were driven by publishers ramping up and expanding beyond their traditional product base into online and events (CMP Technology), publishers selling off after failed attempts to make it work (VNU, Reader’s Digest), or private-equity firms looking to earn back their investment (Penton Media) or make new ones (Summit Business Media), the deal market was driven by a number of factors that added up to one of the most active M&A periods in the history of the magazine business.
Each media banker has a different spin on how many deals occurred in 2006 and how much was spent overall. But all agree that the market was booming. DeSilva + Phillips reports 151 transactions and a dollar volume of $20.5 billion in media transactions, making it the strongest year since 2000 (and close to that year’s total volume). The Jordan, Edmiston Group says that 637 transactions (counting b-to-b, b-to-c, books, database services, directories, educational expos, marketing and interactive, newsletters, newspapers and online media) occurred in 2006 for a total value of $60 billion, up 12 percent over 2005.
The Debt Effect
The ability to access debt has been a driving force in the hyperactive media M&A market. The cost of debt is at historic lows, the amount that can be borrowed is at historic highs and other terms remain aggressive. "Debt oils the M&A market;it facilitates the activity in the M&A market," says Matthew J. Lori, managing director of CCMP Capital, which owns Hanley Wood and Ascend Media. "You can get mezzanine financing at 11 percent these days. You used to have to pay 15 percent."
At the same time, lenders are willing to give as much as 5-to-7 times EBITDA in deals that go to 10-times EBITDA. The impact of this leverage is that private equity firms can put in less, enabling them to produce higher returns on their investments.
What’s more, says David VanderLugt, a director at Goldman Sachs, far more lenders;of various types;are now in the b-to-b publishing space. "It is the supply of capital that wasn’t there," he says. "It is an enormous supply of capital. It is like the West was discovered, suddenly, by a bunch of capital investors."
But is the bubble about to burst? In AdMedia Partners’ 13th annual Prospects for Media Mergers and Acquisitions survey, many of the 1,700 media executives polled expect moderate to strong M&A growth this year. Two high-profile sellers;CurtCo and Cygnus Business Media;took themselves off the block after they failed to receive the bids they expected. And the high prices being paid for some properties have some media observers scratching their heads;such as Vestar Capital Partners buying healthcare publishing and medical education company MediMedia for $634 million. "I have a gut feeling that a lot of these venture guys are over-paying," says one observer. "I think there are some major storm clouds on the horizon."
Folio: has examined 10 transactions that we have deemed the most significant of 2006. With more than 150 (or more than 600, depending on your definition) media deals last year, there are obviously other transactions that could be considered just as significant and interesting. To us, these deals signify what’s going on today with magazine industry mergers and acquisitions, from the prevalence of private equity to publishers redefining themselves and starting anew.
Will the hot deal market continue? Ziff Davis remains on the block and, as Folio: went to press, Bonnier Inc. was the winning bidder for Time Inc.’s Time4Media and Parenting groups. A preview of what may occur in the media deal market in 2007 appears here.
- CMP Technology/United Business Media
- 1105 Media
- VNU (Renamed Nielsen)
- Penton (Prism)
- Reader’s Digest Association
- The Wicks Group
- Metal Bulletin
- Summit Business Media