Dealmaker’s Summit ’08: Info Service Business the New Hot Ticket
Buyers looking for ‘fourth leg of the stool.’
Strategic operators and private equity investors are looking for opportunities in the development of a “fourth leg of the stool,” speakers said today at the annual DeSilva + Phillips Dealmakers Summit. Attractive media companies are going to look very different going forward. “We’re glum about newspapers, and cautious about TV and magazines,” said Peter Ezersky, managing principal at Quadrangle Group LLC.
While only a few members of the audience thought the market is in recession right now, the majority said things would get worse before they get better. That has prompted even longtime players in the magazine market to change what they’re looking for. “A lot of our portfolio is made up of advertising-based services but in 2007 we didn’t buy a single ad-supported business,” said Peggy Koenig, managing partner at private equity firm ABRY Partners, which owns consumer enthusiast publisher F&W and b-to-b publisher Cygnus. “A lot of old media has been disrupted. We see much more opportunity now with information services.”
Dolan Media, which recently performed a $196 million IPO, has developed a series of services that president and CEO Jim Dolan says are economy neutral or even counter-cyclical, such as a mortgage foreclosure service and continuing legal education.
“It’s an easy step from giving them information to giving them services to help them,” Dolan says. “It’s an avenue of growth we hadn’t thought of before 2005. What we’re doing with services is what many publishers are trying to do with online, and that’s build communities. This isn’t an abandonment of anything, doesn’t take away from other services.”
Still, Dolan says his company likes to avoid “overactive markets.” “Right now there’s a lot of play with workflow management and document management at law firms,” he added. “I won’t touch that, we like the dark corners.”
Mobile is viewed much the same way online was a few years ago: a huge opportunity but no one really knows what to do with it yet. “Most content businesses now have some sort of digital business. I think soon they will all also be building mobile,” said Quadrangle’s Ezersky. “Right now, the only ones making money from mobile are the carriers. Until a couple big players figure this out and start butting heads, it won’t happen. We’re already at a place where venture capitalists who invested in mobile a few years ago are disappointed.”
Multiples Continue to Soar for Online
EBITDA multiples are starting to see significant disparity. According to DeSilva + Phillips managing partner Reed Phillips, b-to-b EBITDA multiples averaged 11.5x in 2007, compared to 12x to 13x EBITDA for consumer publishing deals. “Those multiples will continue to carry over into 2008 with high quality companies, while third tier companies will continue to struggle,” says Phillips.
Meanwhile, DeSilva + Phillips said EBITDA for digital content companies averaged between 7x and 15x EBITDA, while ad networks averaged 10x to 18x EBITDA, and social networks averaged 9x to 16x EBITDA.
Despite the bad press for private equity, some speakers said private equity ownership seems to be more forgiving than the public market these days. “VNU couldn’t operate in the public market—now they’re still the same size and because the CEO isn’t making quarterly reports, he can make tough decisions,” says Strauss Zelnick, partner at ZelnickMedia.
Dolan advised publishers to keep their operators out of M&A and focused on the business. “Our analogy is, growing organically is farming culture and M&A is hunter-killer culture,” he said, prompting moderator Charles Engros Jr., managing partner at Morgan, Lewis and Brockius, to quip, “That’s a good analogy because sometimes what you’re hunting kills you.”