Want to Sell at a Premium?
by Marrecca Fiore
In the M&A world, publishing companies with strong e-media strategies are valued more heavily and earn higher multiples compared to their print-heavy counterparts, say media bankers and publishing buyers.
Although tech-savvy employees and a solid technology infrastructure are important pieces to the puzzle, the proof, like with other media platforms, often lies in the revenue. "If you haven't yet been able to monetize the fastest growing segment of advertising, you're in trouble," says Jeffrey Dearth, partner at DeSilva + Phillips.
Strong e-media strategies not only stem the leakage of dollars from print products, they also bring in additional revenue at higher profit margins than their print counterparts, says Scott Peters, managing director for the Jordan, Edmiston Group. "The profit margins are much higher on these products when done right because they cost less to produce," he says.
The ideal percentage of e-media as a percentage of a company's total revenue varies on what the buyer is seeking, Dearth says. "It should be at least 10 percent and growing. But we've heard of some companies that are already at 50 percent."
Some experts point to Penton Media and Advanstar as two companies that were able to parlay their strong e-media strategies into high sales multiples. Penton was acquired by Wasserstein & Co. last year for $530 million or 9 times EBITDA, despite the fact that its EBITDA and revenue declined in the first nine months of 2006 by 6.3 percent. The company's e-media revenue, however, grew by nearly 30.4 percent in the same period to $17.1 million.
Advanstar, which has found success with its DentalExplorer and VetMedSearch vertical search engines, sold to Veronis Suhler Stevenson this year for $1.14 billion, or 12 times its 2006 EBITDA of $94 million.
Clay Hall, CEO of Aspire Media, believes companies devalue themselves by as much as a third when they do not have strong e-media strategies in place. And a strong e-media strategy, he said, is one that is profitable and sustainable. But using the Web only to deliver content more than likely will not net publishers big returns on their investments. "I don't see many companies that are making money by looking at the Web as a delivery channel for content," Clay says. "There are some exceptions in the tech space and for publications that have large international distributions."
Strategic vs. Private Equity Buyers
Both strategic and private equity players are looking for strong online performance in the companies they seek to acquire. But private equity firms tend to play it more safe than strategics when it comes to the actual purchase, says Jeff Reinhardt, managing director at Berkery, Noyes & Co. "Private equity likes a more consistent, predictable, sustainable model," he says. "Pure strategics have a greater threshold of risks. They can take a chance on something and if it doesn't prove out, that's okay. And private equity firms are willing to pay a premium for strategics that have taken a risk and proven it out."
Some private equity firms believe that pure-play online companies are too risky an investment."We have never done a pure-play online investment," says Peggy Koenig, managing partner of Abry Partners, at American Business Media's recent Digital Velocity Conference. "We've invested in many publishing companies: Penton, Cygnus, Dolan, and F+W. Each has an e-media strategy, which is important. But we have to focus on companies with high barriers to entry. And many of the online businesses we looked at are smaller companies with low profit margins and low barriers to entry."
Neal Vitale, CEO of 1105 Media, says he often finds that multiples are just too high on pure-play online companies. "I think they're interesting but the economics are hard to fathom from our world of paying high single-digit to low double-digit multiples on EBITDA," he adds. "And you have online companies expecting high multiples to be paid on revenue for a business that is not break-even."
Different Strategies, Same Outcome: Revenue
Monetizing Web content can be done in a variety of ways depending on the publication and the market it serves. Consumer magazines tend to focus on building enough traffic on their Web sites to build momentum and generate ad dollars, says Peters.
B-to-b publishers tend to focus on lead generation as a method of monetizing their Web platforms. "A lot of b-to-b companies are using the directory models that exist and pointing customers to advertisers," says Peters. "They're getting paid on the model using paid listings as part of the directory and using the leads that they generate from their sites to put vendors together with qualified leads."
Keys to successful E-media strategies:
- Having the ability to show a growing and diversified revenue stream.
- Use of multiple products such as e-newsletters, Webinars, podcasts, and video.
- Having a trained and knowledgeable staff.
- Having a strong infrastructure and content management system in place.