Do Multiples (Still) Have Meaning
Whether operating in a moribund environment or a boom market, there is one
constant in the realm of M&A: potential dealmakers always kick off the transaction
by asking about the price. But unlike the depressed publishing industry of 2003,
today’s healthy market is rich with more corporate entities asking about
However, where do multiples figure in today’s M&A market? It would appear
the newly revitalized M&A environment places less relevance on multiples
than in previous high-octane markets.
"Since 2003, the pace of M&A picked up dramatically," says Scott Peters,
director of The Jordan, Edmiston Group, Inc. "From
the first half of 2004, it continued to slowly build. Earnings have
increased because of the economy, and multiples increased because of this
positive environment. This created a double whammy for sellers of premier
Yet compared to the slow years of 2001 to 2003, those seeking out the
properties are not the strategics, the traditional pursuers of hot
magazine properties;strategic buyers these days are not the active
participants in the M&A scene.
Instead, the role of active acquirers has fallen on the financial buyers.
Private-equity money is now available in greater abundance than ever;as
observers say, there is a surplus of money on the sidelines looking for a
property to buy. "The debt markets are also a loose market," continues
Peters. "There is tons of debt capital lending available. If you put more
debt into the mix, plus the higher level private-equity capital available,
it creates a real frenzy in the marketplace."
And not all of that money is coming from American sources. The major story
of the 2004 B2B Market was Thomson Financial’s $350 million sale of its
Thomson Media division to Investcorp, a Bahrain-based buyout firm making its
first splash in the magazine market. Peters notes purchases like this owe more
than a few cents to the improving state of the American economy and global perception
of the dollar’s worth.
"The value of the dollar has driven international buyers to look seriously
at American properties," notes Peters.
In this market, multiples have been inching upwards thanks in part to more
aggressive lending on the part of banks and in part because of the
improvements in earnings. Today’s buyers show no signs of discomfort in
paying higher multiples. But even with a stable economy and new waves of
available funds, the definition of the magazine market has also evolved.
Potential buyers see more opportunities in the market today versus a mere
two years ago.
Where does all this leave a discussion of multiples? Is it as important as
ever as a measure of relative value? Or are multiples so malleable that in
a hothouse market they can be made to represent anything from low to high.
"My view is that EBITDA multiples are not all that useful," JEGI’s Peters
says. "You can’t ever say, if you’re a seller, that on average multiples
are at eight times, so therefore my company is worth eight times."
David Shaw, president of the media-management services company
Grid Media LLC, concurs with Peters. "I see multiples as a measuring stick,"
he says. "It is a way to measure value of a given acquisition. But average multiples are pretty
meaningless; the value is what a buyer thinks he can get out of a company."
Shaw adds multiples are also pegged to the ebb and flow of various
economic factors which swirl separate and apart from the transactions at
hand. "Multiples;and the price someone is willing to pay for a media
property or any property, for that matter;are also affected by the cost of
money, and the opportunity for possible return," he says. "With interest
rates low, there’s more leverage available, but it’s also harder for money
to make an adequate return as cash. So a lot of cash flows into
investments with a higher potential rate of return, but a higher risk as
well. Some of this risk is mitigated through borrowing. And so you see
average selling prices (and multiples) increasing as more cash chases
after a limited pool of possible investments. It’s the same thing that has
driven the housing market: easy money, easy financing, limited supply. All
of which increases selling prices (and hence, ﾑmultiples’)."
For David Harrington, senior vice president at GE Commercial Finance, Global
Media & Communications, the perceived value of multiples (or the lack
thereof) never play a role in either securing or derailing a transaction.
"That is less about multiples than the on-going considerations," he
observes. "At the end of the day, a buyer and seller are going to
negotiate in their best interests. Multiples are ultimately used as a
benchmark tool. That’s all they really are;they are not a hard and fast
element of the transaction."