Study: Number of Private Equity Buyers Increases 120 Percent Between 2000 and 2006
Since 2000, private equity firms have increased the number of publishing transactions they’ve made on the buy side by 119.6 percent and the number of transactions they’ve made on the sell side by 366.7 percent, according to new research from media investment bankers, the Jordan, Edmiston Group. Private equity firms represented 20.2 percent of total buyers in 2006, compared to 10.4 percent in 2000.
The research shows that private equity firms were the buyers in 51 publishing transactions in 2000. In 2006, PE firms were the buyers in 112 deals. Private firms were the sellers in six deals in 2000, compared to 28 deals in 2006.
JEGI managing director Scott Peters said Thursday the increased private equity activity shows the publishing industry is undergoing "a major face lift." "The market will no longer be dominated by a handful of major conglomerates but a wide variety of well financed, nimble and entrepreneurial middle market players," Peters said during a Q&A with Folio: Alert. "This has been and will continue to reinvigorate both the consumer and B2B publishing industries."
Private equity firms were active in a number of deals last year including the acquisition of VNU (now The Nielsen Companies) by a group of six private equity firms, the acquisition of Penton Media by Wasserstein & Co. and Mid-Ocean Partners, the acquisitions of Pfingsten and Highline Media by Wind Point Partners and the acquistion of CMP’s NewBay Media by the Wicks Group.
Even so, strategics and other non-PE firms remain the most active buyers and sellers in 2006, active in a total of 968 deals. But Peters said the increased interest in media properties are changing the dynamics of the M&A market overall. Here’s what else he had to say:
Folio: Alert: What makes the publishing industry so attractive to private equity firms?
Peters: The publishing industry is attractive to PE funds for many reasons:
- Major strategic publishers are not focused on acquiring traditional magazine businesses, as they have been focused on re-engineering their businesses to address the internet and new electronic models. This has left the acquisition market primarily to PE funds.
- The brand value of a market leading magazine franchise is significant. PE funds believe these brands will provide significant competitive barriers in the online realm. Many PE funds are not afraid to change the traditional publishing model to embrace the Internet – this is good for the industry as a whole.
- Publishing businesses still present attractive free cash flow dynamics. The debt market has been very aggressive over the last few years, and the combination of available debt and low interest rates, coupled with strong free cash flow characteristics, creates attractive leverage dynamics for PE funds.
- Major media companies have divested large underperforming publishing assets, which represent another type of acquisition opportunity that PE funds seek.
Folio: Alert: Why are we seeing so much more selling in recent years? Is it a result of the normal investment cycle or is there more to it than that?
Again, major media companies have been frustrated with traditional print models as they seek to scale their activities in the online world. Instead of focusing on re-engineering their publishing businesses to embrace the web, they have chosen to divest these assets and acquire online businesses and skill sets. This has created a contrarian market for publishing assets, which the PE funds have found attractive.
PE firms were the buyers on 120 percent more transactions of US media properties in 2006 versus 2000, while the total number of deals was up only 13 percent.
Folio: Alert: How does this affect multiples, both on the buy and sell side?
Interestingly, the dynamics mentioned would imply multiples should be depressed if the major strategic buyers are not active. However, the private equity market has been so competitive that multiples have actually exceeded historical levels. High multiples have also been driven by an aggressive debt market. It is a good time to sell and a tough time to be a buyer.
Folio: Alert: What does this mean to the industry?
On a micro level this means the M&A market will continue to thrive, as new publishing platforms have been formed and there is a mounting war chest of capital driving them. This increased M&A activity is healthy as it will stimulate innovation and inspire publishers to launch new titles and evolve existing franchises.
PE Buying Activity
2000, # of deals
2000, % of deals
2006, # of deals
2006, % of deal
2000 vs 2006, % change
Strategics and Other Buyers
Source: Jordan, Edmiston Group