Financial Firms Actively Investing in Media and Information
The Jordan, Edmiston Group, Inc. (JEGI) asked a select group of financial executives
for their thoughts on investing in the media and information industries and current valuations
on M&A transactions.
Download PDF file of the Client Briefing from JEGI here>>
Private Equity Firms Questions posed:
Is your firm actively looking for investments in the media and information industries?
If so, within what sectors are you pursuing acquisitions and why? If not, why not?
What do you believe will be the best per-forming media and information
sectors for the remainder of 2005 and into 2006? What will be the worst performing?
Please comment on current valuations in the media and information industries.
Is your feeling that valuations are high, low, average? How do valuations compare with
six months ago, and where do you see the trend heading over the next six months?
Thomas Bagley, Senior Managing Director,
Pfingsten Partners LLC
Pfingsten is actively looking for investment opportunities in the media
and information industries. We continue to be interested in B2B media
(print, events, on-line content and data); niche consumer media (print,
events, on-line content and data); and a special niche media sector that
combines the two markets, but is currently confidential.
The best performing media and information sectors for the remainder of
2005 and into 2006 will be: (i) on-line content; (ii) data driven by
subscription models; (iii) on-line/interactive advertising and marketing
services; and (iv) events. The worst performing sector will be print.
Valuations in the media and information sectors are higher now than they
were during the late 1990’s, driven by: (i) a strong economy; (ii)
abundant and relatively cheap credit; (iii) excess capital in the private
equity market; (iv) corporate buyers returning to market; and (v)
unrealistic multiples paid by acquirers.
Valuations are higher now than they were six months ago. We expect them to
stay high near-term, driven by several of the factors listed above, as
well as strong interest in acquisitions on the part of a handful of
"over-eager" private equity firms.
Jamie Weston, Principal, The Wicks Group
of Companies, LLC
As a sector-focused private equity firm, we are constantly searching for
attractive investment opportunities across a wide range of media and
information markets. We have been investing in the middle-market media
space for over 15 years and have been very pleased with the growth
potential, high margin performance and liquidity that these types of
assets generally present.
Currently, we are very focused on: 1) educational publishing markets, due
to favorable trends in government spending; 2) B2B publishing, because of
the recent improvement in advertising; and 3) radio assets, since we feel
very bullish on the potential of individual stations/markets to grow,
despite the recent spate of negative press.
Going forward, we feel that products and services catering to the
educational markets will continue to perform very well. State budgets have
rebounded strongly, creating pools of excess capital, and there is pent-up
demand for products. The "No Child Left Behind" act will also drive
spending over the next few years, since future budgets depend on the
standard test performances of the students.
Current valuations are robust, driven by recent positive financial
performance, an optimistic view of the economy over the next few years and
strong liquidity in the debt markets. I would say that valuations are
definitely higher than they have been in quite some time. I would also
expect prices to soften a bit over the next year.
Kenneth Hanau, Managing Director, Halyard
Capital Fund Harris Nesbitt
Halyard is very actively looking for investments in the media and
information industries. We are focused primarily on direct marketing and
marketing services, as we foresee marketing dollars shifting to more
discernable returns on investment (ROI’s). In fact, Halyard recently made
its first interactive investment into a company called eLearners, which is
a lead generation company for the online post-secondary education market.
We believe the out-of-home (digital conversion) and direct marketing
sectors will continue to outperform other media and information markets
for the remainder of 2005 and into 2006. In our view, television,
newspapers and radio have some structural challenges and may be among the
worst performing media and information sectors in the near-term.
Halyard sees valuations as currently being too high across the media and
information industries, driven by too much capital in the market and by a
large number of private equity and hedge fund investors actively shopping
for acquisitions. Valuations seem to be holding, as we have not seen any
significant change over the past six months. Additionally, we do not
expect valuations to shift meaningfully anytime soon.
Sean C. White, Principal, Spire Capital
Spire Capital is actively looking for investments in the media and
information industries, especially in the B2B publishing, Internet market-ing
services, information /database and community newspaper sectors.
We foresee Internet marketing services as the best performing media and
information sector for the remainder of 2005 and into 2006, while TV
broadcasting will most likely fair the worst.
We think valuations in the media and information industries are "WAY" too
high right now. The debt markets are a bit frothy, which are fueling
valuations. We foresee valuations decreasing somewhat in the coming
months, because the debt markets are beginning to cool, and without the
extra leverage supplied by these markets, valuations will decline.
Robert J. Fitzsimmons, Managing Partner,
The Riverside Company
We are actively pursuing acquisitions in the media and information industries,
principally focused on specialty business-to-business (B2B) publishing. We think
we can still find proper-ties at attractive valuations in this market sector. We also
believe that valuations are too high in the rest of the media and information market.
We expect fairly strong performance across all media and information
sectors, with the strongest performances coming from business publishing
and information services and trade shows – this is consistent with what we
are currently seeing in our portfolio. We expect some-what softer
performance in consumer publishing, in which we are not currently active
Current valuations generally seem higher than historical norms, and they
have increased over the past six months. We expect valuations to remain at
current levels or even increase slightly over the next six to twelve
months, as demand for acquisitions is as strong as ever and financing is
Banks/Lenders Questions posed:
What is the general mood and lending
climate in the media and information industries?
What media and information sectors do you
foresee as being the most active from a lending perspective for the
remainder of 2005 and into 2006?
What will be the least active? Why?
What is your range of lending multiples
on senior debt?
What are the key factors that determine
How do those levels compare with six
months ago, and where do you see the trend heading over the next six
Mark Young, Senior Vice President
Publishing Group, Citizens Bank
The general mood and lending climate in the media and information
industries is buoyant. More commercial banks, finance companies, mezzanine
lenders and other institutional debt providers are lending in this space
and are more aggressive than at any time in recent memory. Most have a
loan-to-value approach and are taking comfort from recent comparables,
disregarding the fact that these are cyclical businesses and that both
purchase price multiples and EBITDA are currently higher than normal. One
seasoned and successful equity investor recently compared the current
environment to the last days of Drexel Burnham, with so-called staple
financings replacing highly-confident letters as the manic financial
innovation du jour.
Healthcare-related media has been the hottest sector over the last year or
more. That is probably a function of its relative stability, its already
large and growing position in the economy, and perceptions about future
demographic trends. It is not clear what will happen in the near-term to
change this positive outlook, or slow the consolidation taking place in
Educational publishing is another hot sector. The "No Child Left Behind
Act" has fueled a lot of interest and activity since it was enacted in
2002. The large strategic players, as well as a number of private
equity-backed platform companies, are positioned to continue acquiring the
smaller book and supplemental materials development companies.
Stating the obvious, New Economy and technology-related print media, which
proved to be highly cyclical in the last downturn, will continue to be
"out of favor" investment opportunities. There is probably a contrarian
play or two in these sectors, if the price is right.
Our lending parameters have not changed markedly since the early-1990’s,
even though we have been through several economic cycles since then. We
are still lending in the 2x-4x range for senior debt, and at slightly
higher multiples for community newspaper portfolios. Strong operating
metrics and deep, experienced management teams are compelling factors that
argue for higher leverage.
Prevailing market leverage multiples, for both senior and total debt, have
increased over the last six months. Whether they trend higher over the
next six months will depend on the health of the economy and how short- to
inter-mediate-term interest rates fare.
Chuck Dreifus, Managing Director, Media
Finance CIT Group, Inc.
The media and information industries continue to generate strong interest
and enthusiasm from all forms of lenders (finance companies, banks,
institutional, hedge funds, etc.). This is a result of strong valuations
across most media and information sectors, driven by a number of
acquisitive private equity firms and strategic companies. Additionally,
several recent financings in these sectors have been well received in the
debt market place.
Interestingly, this strong level of interest has held despite less than
stellar financial performance. Recently, we have seen a number of
middle-market deals with flat or even slightly negative financial trends.
However, with so many new lenders in the markets, there is a significant
amount of capital to be deployed. This has helped to drive leverage up
considerably, while providing significant borrower flexibility and holding
down interest rates.
Publishing and information sectors will likely attract the bulk of new
lending activity, due to strong M&A activity in these markets, as sponsors
continue to build platforms.
Compared to a year ago, lending multiples are somewhat higher, but we do
not foresee them rising significantly from current levels. Some key
factors, other than general market conditions, that help determine lending
multiples include: historical financial performance; strength of the
management team; the sponsor; market sector; and diversity of cash flows.
Recently, our multiples have generally ranged from 4×-6.5x.
David VanderLugt, Senior Vice President,
Media Goldman Sachs Specialty Lending Group
2005 has been a very active year for media M&A, particularly in the
publishing sector, driven by:
1) senior debt and "stretch" debt investors are providing more leverage at attractive pricing
2) acquirers/investors are finding platforms with scale, which have not been available for
3) financial performance is steadily improving. These factors are all contributing to:
4) valuations that have brought sellers
While this front-end activity creates a positive energy and excitement in
the market, operators must execute and grow their businesses in order to
realize these investments.
The number of M&A deals involving larger media platforms in the first half
of 2005 has created a tremendous buzz that will likely tempt more business
owners to sell their companies now. As such, acquirers may find a larger
number of small- and middle-market sellers across all media and
information sectors, in the second-half of 2005.
Currently, the capital markets are more volatile than most would think.
This year, we have seen leverage multiples increase over a period of
months, followed by a meaningful retraction over a period of weeks. The
right partners and a strong capital structure can help to reduce this
Karen Dorn, Senior Vice President and
Manager, Communications Finance Division, Wells Fargo
The leveraged lending markets are robust, and they are as competitive as
we have seen since the late 1990’s. This has resulted in more liberal
credit structures and reduced loan spreads, to the point where one could
argue that the yield on senior debt is not commensurate with risk.
Competition has been driven, in part, by new entrants to the lending
market in the form of finance companies and hedge funds, as well as the
availability of mezzanine capital. This has helped push total leverage
We have seen the most activity in the B2B publishing sector, with specific
interest in niche or specialty areas, where multiples are considered more
reasonable. There has been little activity in the radio and TV
We think lending multiples will remain strong for the foreseeable future,
but there will be an eventual correction, when economic conditions weaken.