Deal-Market Watchers: Tightening Debt Could Chill Magazine M&A
The hot M&A market over the last two-and-a-half years has been to a great extent dependent on a couple of factors: Private equity’s interest in media properties and a highly favorable debt market. In recent weeks, through, the debt markets have tightened dramatically, leading some observers to worry that the long red-hot market may be about to end.
"All of the sudden pricing is going up, multiples are going down and money is getting tighter," one source said. "That will have an effect on deals today and deals coming to the market."
"In publishing deals that are PE backed, traditional debt multiples have been 3.5 – 4.5X TTM EBITDA. Today they seem to be at the 5 – 7X TTM EBITDA with extremely favorable covenant terms," says Scott Peters, an MD at Jordan, Edmiston Group.
"When the leverage gets to be greater than 7X trailing EBIDTA, the deals could become more difficult to syndicate," says Jim Casella, CEO of Case Interactive Media. "This will impact the multiples, which have been at historical high levels."
Behind the tightening is a psychology affected by concerns about the sub-prime mortgage market, the recent collapse of two Bear Stearns hedge funds that required a bailout from the parent company, and, according to Royce Yudkoff, partner at ABRY Partners, a handful of deals that overreached in their requested financing terms.
Although the concern is now officially in the air, most magazine-industry observers say they have not seen an impact on this market. "I’ve heard rumblings, but have not seen the M&A market cool off at all," said David Nussbaum, a former CEO of Penton Media who with ABRY successfully sold that company to Wasserstein earlier this year. "Even if lenders tighten up a bit, there are still many factors that would keep the M&A market relatively healthy," Nussbaum said:
- If the debt markets tighten a bit, but not aggressively, debt would still be available and by historical standards still relatively inexpensive.
- There is a significant amount of money that has been raised by private equity that has yet to be placed.
- The general economy remains pretty strong, meaning that companies are performing well and thus are attractive as buy out candidates.
JEGI’s Peters agreed that the tightening has not affected deals the size of a typical magazine-industry transaction. "This is happening a bit at the upper end of the market but has not really trickled into the small to mid-market deals as of yet," he said.
One of the most acquisitive CEOs in the business, Apprise Media’s Charlie McCurdy, had this to say: "The market is volatile and changing day by day, but what I’m hearing is that the very aggressive (high-leverage ratios, "covenant lite," terms) are getting strong resistance, but more conventional arrangements are getting done."
His colleague, Apprise Media managing director Michael Behringer, said, "You’re seeing some choppiness in the credit markets. It is premature to draw any conclusions. We’ll see if this is a normal ebb and flow, or the beginning of a longer adjustment in the credit cycles. No one has a crystal ball on it."