Media M&A: Recovery or Fire Sale?
Deals (and dollars) are up, but that‚Äôs driven by distressed sales.
Media M&A largely disappeared in 2009, at least in the traditional consumer and b-to-b publishing markets. However, in the first half of 2010, media M&A has been surprisingly active. The Jordan, Edmiston Group says 445 transactions were announced through the first six months of the year, up 52 percent from 292 deals for the same time last year. Deal volume jumped 291 percent to $20.79 billion.
Elsewhere, investment banker Berkery Noyes says the number of deals in the first half increased by 21 percent to 309. AdMedia Partners claims in its 2010 Market Survey ‚ÄĒwhich asks media professionals about their prospects for buying or selling‚ÄĒthat buyers are back, motivated to act now partly because of potential increases in capital gains taxes with future deals.
Of course, one should note that the definition of ‚Äúmedia deal‚ÄĚ has become quite broad. JEGI‚Äôs report now covers 10 markets, including B-to-B Media, Consumer Magazines and Exhibitions but also Mobile Media & Technology and Marketing & Interactive Services. While the number of b-to-b deals (23) was up nearly four times over the first half of 2010, the number of consumer magazine deals fell 50 percent to 12, according to JEGI. (At presstime, Playboy founder Hugh Hefner was offering to take the company private while Penthouse owner FriendFinder was offering $210 million for the brand and its assets.)
The publishing industry saw some notable deals such as former Time Inc. digital group president Vivek Shah partnering with Boston-based investment firm Great Hill Partners to acquire Ziff Davis Media in a deal reported to be less than $150 million. However, the fact remains that many of the deals were distressed transactions. The dissolution of Reed Business Information and Nielsen Business Media accounted for more than 15 deals alone.
‚ÄúWith very few exceptions, all trade show and trade magazine deals for the past two years have not been for strategic growth, but fire sale transactions,‚ÄĚ says one M&A observer.
Consumer magazines, exhibitions/conferences and newspaper publishing all saw declines in the number of transactions and value, according to the JEGI report.
‚ÄúThe trade show M&A market continues to be non-existent due the lack of literally any real buyers or sellers,‚ÄĚ says one player in the events arena. ‚ÄúThe market has been this way for about two years now and will continue in this lackluster mode at least through the end of this year.‚ÄĚ
Several deals involving city and regional magazines have occurred in recent months, including CurtCo Publishing divesting its regional magazine stable and Zivyak Media Group buying defunct San Jose Magazine. ‚ÄúThe pricing of city and regionals is very favorable right now,‚ÄĚ says Milt Jones, president of Desert Publications, which bought CurtCo‚Äôs San Diego.
JEGI acknowledges that much of the volume included distressed sales but says the number of healthier prospects is picking up. ‚ÄúThe majority of M&A activity has been characterized by distressed situations,‚ÄĚ says JEGI managing director Scott Peters. ‚ÄúHowever we‚Äôre starting to see a shift to companies exploring exits from positions of health as opposed to stress. Many of the larger strategics may not be seeing explosive growth in 2010 but they are up over last year. Some are looking for acquisitions that will accelerate growth, others are looking to transform their businesses.‚ÄĚ
A Decline in EBITDA Multiples (Digital Too)
Some middle market finance has come back but it is much more conservative than in the past, according to observers. ‚ÄúWe‚Äôre doing a debt market survey right now that asks people that based on current levels, what year is this most like,‚ÄĚ says Peters. ‚ÄúIf you were to go back in time, what year are we in? Many people are saying 2002-2003, which means back to 2.5x-3x times senior debt on deals as opposed to 4x or 5x, which we saw in the recent past. Covenants are getting back to more normalized debt covenant arrangements.‚ÄĚ
According to AdMedia‚Äôs Market Survey, the level of EBITDA multiples that buyers consider reasonable is dropping. Reasonable multiples for both consumer and b-to-b magazines are in the 4-5x range (compared to 5-6x in 2008 and about 9x back in 2005). Even multiples for online media are declining. While multiples of 9-10x and 12-15x were considered reasonable in 2009 and 2008 respectively,¬† respondents to AdMedia‚Äôs 2010 Market Survey said multiples of 8-9x are more in line with expectations this year.
Next Up: ‚ÄúTransitional‚ÄĚ Acquisitions. But How Many Can Afford Them?
M&A in the second half of 2010 will revolve around ‚Äútransitional‚ÄĚ deals that will recast publishers‚Äô business models, according to Peters, who holds up Hearst‚Äôs acquisition of digital marketing firm iCrossing as an example. Last month, Meredith Corp. bought the remaining 80.1 percent stake in mobile marketing specialist The Hyperfactory (it had acquired a 19.9 percent stake in the agency last year).
On the consumer side, larger publishers are not buying print but instead concentrating on their business models, with an emphasis on marketing services. ‚ÄúIt‚Äôs no longer about what consumers want,‚ÄĚ says Peters. ‚ÄúIt‚Äôs about what advertisers want and how can publishers deliver. They‚Äôre not abandoning core content but they are being much more sensitive to the shift in advertising behavior.‚ÄĚ
But with a reported price tag of $325 million for iCrossing, don‚Äôt expect too many publishers to be making similar deals, at least on that scale.
In January, Time Inc. acquired StyleFeeder, a destination site and social e-commerce enabler for fashion products in a deal reported as being worth eight figures. Fran Hauser, Time Inc.‚Äôs president of digital for the Style & Entertainment group, said the deal was primarily a result of the company‚Äôs four-tiered approach to online acquisitions. ‚ÄúBefore we even evaluate an online property, we assess how attractive the category is as a whole. Is the market growing or underserved?‚ÄĚ she says.
From there, the acquisition must open up a new revenue stream or allow Time Inc. to capture a greater share of high-growth advertising categories. In this case, StyleFeeder brought in instant e-commerce play.
Third, the company should already have natural assets that complement and enhance the acquisition, as InStyle and its fashion content does for StyleFeeder.
Lastly, says Hauser, the acquisition needs to provide a ‚Äúfunctional service or technology that complements our core service, which is content. Buying technology in the digital space that complements our editorial expertise is definitely attractive.‚ÄĚ