ABM Panelists: ‘Pure Play’ E-Media Companies Attractive to Strategic Buyers, Not P.E. (posted 3/30)
A publishing company’s online presence can make or break a deal in the always competitive M&A market. But a strong online presence isn’t enough, at least for many private equity companies, said Peggy Koenig, managing partner of Abry Partners, during a panel discussion at American Business Media’s Digital Velocity Conference Wednesday in New York.
“We have never done a pure-play online investment,” she said. “We’ve invested in many publishing companies: Penton, Cygnus, Dolan, and F+W. Each has an e-media strategy, which is important. But we, as an investor group, have to focus on companies with high barriers to entry. And many of the online businesses we have looked at are smaller companies, low profit margins and low barriers to entry. So there’s nothing stopping the competition from coming.”
But publisher Reed Business Information, a strategic buyer that evaluates the acquisition potential of five to 10 companies per month, will consider a pure-play e-media company if it complements the portfolio of products the company already has, said CEO Tad Smith. “We also look for high barriers to entry,” said Smith, speaking on the same panel. “But when we look at electronic models, we look at companies that we can help accelerate their growth using our products and at companies that can help accelerate the growth of our products, and at companies for which we won’t have to pay a nosebleed price.”
Panelist Jay MacDonald, partner, digital media & technology, DeSilva + Phillips, agreed that e-media companies do work better for strategic buyers than for private equity players. “What we like are companies that can piggyback well with other content offerings,” he said. “We look for companies that can add value and scale to a strategic buyer. The companies may not have real high barrier to entry, but plugged into the right formula they can develop those barriers.”
Charles Engros Jr., a partner at law firm Morgan Lewis & Bockius LLP, said his private equity clients are often in a defensible position and solid revenue streams and low barriers are critical when it comes to making their buying decisions. “Strategics are often looking for an asset that adds value to their existing product base and that can be a pure technology play if it involves someone who has found a new way to generate revenue from the use of technology.”