M&A Transactions, Online Advertising Up in the First Quarter of 2007
Private equity interest is driving double-digit multiples in b-to-b transactions.
The mergers and acquisitions market remained strong in the first quarter of the year with 207 transactions valued at nearly $13 billion taking place, according to the Jordan, Edmiston Group’s Q1 industry overview. And private equity interest is continuing to swell multiples in b-to-b transactions, says Berkery, Noyes & Co. in its latest Outlooks & Strategies report.
Excluding newspaper deals, overall deal volume increased 17 percent and value increased 43 percent in the first quarter of the year, compared to 2005 activity, across the sectors tracked by JEGI. The online media transactions accounted for more than half of the total deal value in the first quarter with 19 transactions worth $6.5 billion. "Moderate interest rates, investor liquidity, and the continued drive for new corporate growth each supported the continued record pace, despite scattered warning signs of a potential slowdown in the U.S. economy," said the JEGI overview.
The interactive M&A marketplace continues to chase strong growth in online advertsing, revenue for which was $17 billion in 2006, an increase of 34 percent over 2005. Video advertising is leading the pack with eMarketer projecting that online video advertising will reach nearly $3 billion in 2010 for a 63 percent growth-rate over 2006 levels.
Key sector performance for the quarter included:
- Business-to-business magazines. Deals were flat, but values were up. There were a total of nine deals in the first quarter of the year worth $634 million, compared to 10 deals worth $136 million in the same period in 2006.
- Consumer magazines. Deal activity was robust increasing nearly 50 percent over 2006. There were a total of 22 deals worth just under $1 billion, compared to 15 deals worth $93 million last year.
- Exhibitions/conferences. Deal activity increased 21 percent, but transaction value fell nearly 45 percent. Total transactions and values for the first quarter of the year were 17 and $122 million, respectively, compared to 14 and $220 million in the same period a year ago.
Multiples on the Rise in B-to-B Transactions
Private equity interest may be driving the multiple growth in b-to-b transactions, but it’s strategics that are coughing up the most money for b-to-b media companies, according to Berkery, Noyes & Co.’s Outlooks & Strategies report.
Of the nearly 138 b-to-b transactions that took place over the last 18 months, nearly half of the acquisitions were made by private equity funds. The other half of the acquisitions were made by non-P.E.-backed strategic buyers. The median EBITDA multiple for all the b-to-b transactions was 10.8X in the first quarter of the year, compared to 10.1X in 2005, according to Berkery, Noyes.
Although private equity appears to be driving the growth in multiples, strategics are paying the higher median price, 11.5X EBITDA, compared to 10.7X EBITDA for P.E.-financed deals. "While the boom in private equity investment in the b-to-b communications market presents unprecedented opportunity for private sellers, the strategic buyers are anything but sidelined," writes Kathleen Thomas and Jeff Reinhardt, managing directors for Berkery, Noyes, in the report. "They are aggressive in their pursuit of a strong strategic fit, and highly disciplined when the target is not."
But P.E. investment offers advantages beyond multiples. "Sellers to private equity buyers typically remain with the business, often with a chance to participate in the upside of the business going forward," the report says. "This can be particularly attractive to family owners who are looking to transition the business from one generation to the next."