The Best Deal Market Ever?
Penton, Cygnus, Highline, Pfingsten, maybe Ziff Davis. These companies, and surely others, are currently up for sale and their confluence triggers a stop-and-smell-the-roses moment. The 2005-2006 media M&A market so far has been more robust and active than any in recent memory, with some citing comparisons to the online-frenzied, ad-fat days of 1999-2000. And as long as interest rates are kept in check, industry observers say we’ll continue to see more of the same.
Media bankers DeSilva & Phillips titled their 2000 M&A report "A Year to Remember." This year, according to their numbers, will handily eclipse it. In 2000, DeSilva & Phillips measured 102 deals with a dollar volume of $189.8 billion. That includes the $165 billion AOL-Time Warner blockbuster. Twenty-nine deals involved private equity firms–28 percent of all volume.
Skip ahead to 2006 and the deal picture looks even more dramatic. "In the first half of 2006, there have already been 73 deals, of which 41 had a private equity participant," says DeSilva’s Reed Phillips, who thinks this is the best deal market he’s seen. "That’s 56 percent, or double, the number from six years ago." Phillips adds that those 73 deals total $12.1 billion, which is dominated by this year’s blockbuster–the VNU deal.
"I would say this is the best media and information M&A market we’ve seen," says Gross. "Not only is it a better M&A market in terms of deal value–M&A deal value surpassed 2000 levels in 2005 and is on pace to surpass 2005 levels in 2006–but in the current market, we are seeing real businesses, with real revenue and profits being acquired by real companies with veteran management teams and industry leadership."
Creating the M&A action over the last 18 months has been a perfect storm of favorable debt and lending terms, a hungry private equity market, strong balance sheets among the strategics with cash to spend, and publisher business models that have successfully straddled the print, online and event worlds creating real and increased value. Though Rob Garrett, managing director at AdMedia Partners, suggests most of the activity in the magazine M&A space is largely driven by private equity, with strategics looking abroad for deals. "Is it a good deal environment? Yes it is. But what’s interesting to me about the recent spate of activity is really in most cases it has not been acquisitions by strategics as much as by private equity firms. But strategics have been more active internationally. You don’t see Time Inc., Hearst or Conde Nast snapping up domestic companies."
However, this is no time to set the controls to automatic pilot. Interest rates have been on the rise–"It will be helpful if [Federal Reserve Board chairman, Ben] Bernanke stops raising interest rates, as he is indicating he will do," says Gross–and marketers are still pushing for more ways to connect with their customers.
"What could derail this market? An economic slowdown of some proportion or rising interest rates," says Larry Grimes, president of W.B. Grimes & Company. "Longer term, it is becoming clear that advertisers are going to require publishers to not only generate a strong sales lead return on their investment dollars, but serve as a middleman between the purchaser and seller."