The M&A Outlook For 2013
Industry experts forecast what M&A trends will emerge.
There were notable deals in 2012—Hanley Wood, Ziff Davis and The New Republic, were among the big-name brands moved—but no blockbusters. Mergers and acquisitions activity in the consumer and business-to-business publishing markets increased some, but held close to recent averages for the most part.
A fourth quarter flurry was expected to give way to a slower first half of 2013, with sales rising as the year went on. Things haven’t played out that way though.
Volume was up late last year, but the mass sell-offs anticipated in the run-up to 2013 tax code changes didn’t hit the media sector with full force.
Through the first two months of this year, both private equity and strategics have been making big news in M&A. The Wicks Group purchase of what is now McMurry/TMG called attention to the increasingly-relevant content marketing segment, while the rumored Time-Warner sale of its magazine properties—a transaction whispered to be somewhere between $1.75 and $3 billion—could have historic implications.
“If this sale is concluded, it will likely cause other sellers to move their timetables ahead,” says Reed Phillips, CEO and managing partner of DeSilva + Phillips, an M&A advisory firm specializing in media properties. “[It will] give them confidence.”
A deal of that size would push sector M&A totals up as much as 10x by itself, while causing other dominoes to fall throughout the industry. Analysts are looking to other trends for growth as well though.
Better Business, More Activity
For one, the businesses themselves appear to be strengthening. Few are back to the peaks of the mid-2000s, but those that survived the recession seem to be significantly more valuable, and thus more inclined to sell, than they were two or three years ago. Increased availability of debt capital also has 2013 poised for a bigger year, analysts say.
“[The reason] many of the b-to-b and b-to-c companies had a really hard time in the downturn, was because they were overleveraged,” says Scott Peters, a co-president of the Jordan, Edmiston Group (JEGI), an investment banking firm. “What you’re seeing now and what you’ll begin to see, is debt, at reasonable levels, will come back into these businesses. They’re fundamentally good businesses.”
Adds Phillips: “Buyers have been sitting on a lot of cash. And with the debt markets loosening up, that’s good news.”
Many companies are trying to diversify their revenue streams now—events, e-commerce and marketing services have been popular solutions of late—but those who have demonstrated success in moving away from the traditional advertising- and print-based business models are expected to draw heavy interest from buyers.
Particularly in b-to-b publishing, the trend is starting to appear.
B-to-B a Better Target Going Forward
“If you look at the models and how they’re transforming, many of the b-to-b guys are getting there faster than the more traditional b-to-c folks,” Peters says. “Because of that, they’re attracting more capital. You’re seeing everything from research to data to lead generation to e-commerce—a lot of those models are beginning to emerge out of the b-to-b players. As those are emerging, they’re starting to turn the businesses into more interesting, and in many cases, higher-growth, more-sustainable businesses. So you’re getting a lot more investment interest around it because of that shift.”
Greater industry fragmentation and ownership profiles—there are more private equity owners looking to transact in b-to-b than there are in consumer publishing—have also contributed to a rise in activity. B-to-b acquisitions spiked in both value and volume last year.
However, says Kathleen Thomas, managing director of media M&A advisory firm Berkery Noyes, it’s not simply about having a hand in these other markets.
“It completely depends on the vertical market and how robust it is and what the business model is, and all those factors,” she says. “But to the extent that you’re making money online, it’s highly attractive to buyers. It depends on how successful you are.”