From reeling to dealing
B-to-b media looks to rebound from a rough first half with M&A activity focused on extending portfolios beyond print
By Sean Callahan
Over the past three years, there were many warning signs about the downside of acquiring b-to-b media companies. These warning signs had names—like Advanstar Communications, Cygnus Business Media, Penton Media, Questex Media and Summit Business Media.
These companies, all of which had been acquired by private equity firms, underwent financial restructuring of their debt in the wake of the recession that started in 2008. Those reorganizations were more than enough to give a potential buyer of b-to-b media some serious pause.
It didn't help that even media companies with healthy balance sheets saw print ad pages drop by about 30% in 2009. As the entire industry scrambled for a new business model that was less reliant on print, the M&A market became moribund.
Even as other media sectors saw M&A activity surge in the first half of the year, media investment bank Jordan, Edmiston Group called the b-to-b media deal flow “uneventful.”
The number of deals plunged from 23 in the first half of 2010 to eight in the first six months of this year, while the deal value plummeted 74% to $23 million, according to Jordan, Edmiston figures.
But the market in b-to-b media and information appears to be staging a second-half comeback. “I don't think it's another gold rush like we had a couple of years ago,” said Ed Fitzelle, managing director at Whitestone Communications.
“I think you're going to see a lot more deals based again on a fundamental value proposition and based on the idea of strategically adding another facet to your business to get more revenue from the same market.”
Here is a cross-section of b-to-b media deals, from the blockbuster to the modest, announced in the past few weeks:
(Financial terms of the Focus Research, School & College Building Expo, Nine Lives Media and American Printer deals were not disclosed.)
Industry observers said the variety of these deals showed a renewed confidence in b-to-b media of all kinds (with the possible exception of advertising-supported print media), despite the continued difficulty in finding credit to complete acquisitions and the looming potential of another recession.
The value of Bloomberg's deal for BNA, which publishes subscription newsletters such as the Daily Tax Report and Daily Labor Report, shows the premium placed on paid content, which is viewed as the top of the food chain in business media and information. Bloomberg, which rarely makes acquisitions, described its deal for BNA, which had revenue of $331 million in 2010, as a “rare strategic opportunity.”
Providence Equity's and McCurdy's deal for GLM shows a faith in a new kind of b-to-b media company, one built primarily around trade shows rather than publications. McCurdy previously ran Canon Communications, which generated the lion's share of its revenue from trade shows and which was sold to United Business Media for $287 million last year.
Industry observers are buoyed by McCurdy's quick return to b-to-b media. “It's another example of someone willing to invest in the future, showing he has confidence in the market and a vision,” Whitestone's Fitzelle said.
1105 Media made a similar, if smaller, investment in events with its purchase of School & College Building Expo. The deal is a reflection of how many b-to-b media companies are transforming their businesses. In 1105 Media's case, the company is reducing its reliance on print and investing in digital and face-to-face media. “We'd like to get to the point where events are the largest percentage [of our revenue],” 1105 Media President-CEO Neal Vitale said. “I'd like to see events be half of our revenue.” Currently, events account for one-third of 1105 Media's revenue.
Ziff Davis' acquisition of Focus Research is another indication of how the emphasis of b-to-b media has changed in recent years. The acquired company focuses on digital lead generation for marketers.
The move to more digitally oriented products is viewed as extremely healthy and necessary by industry observers. “They're seeing less dependence on advertising and they're shifting to digital,” said Reed Phillips, managing partner at DeSilva & Phillips. “With the shift to digital, more profit is dropping to the bottom line.”
Penton is making a decided shift to more digitally oriented services. It recently acquired Nine Lives Media, a group of three online destinations, including the blog Talkin' Cloud. Nine Lives will become part of Penton's Technology Group, which publishes Windows IT Pro. Earlier this year, Penton acquired digital consultancy Eye Traffic to boost its marketing services offerings.
In addition to acquiring Nine Lives, Penton was also a seller in August. After the company announced that it was closing American Printer, Output Links stepped up to buy the brand.
“When we heard it was going to shut down, our team felt this print industry icon deserved to live. So we bought it. And now we look forward to giving it new life and extending its services through our global platform,” Andy and Julie Plata, co-CEOs of OutputLinks, said in a statement.
Despite sluggish overall economic growth and the lingering threat of a double-dip recession, industry observers see continued deal flow in the months ahead, especially for companies that have expanded their presence in online, event and data businesses. “The b-to-b media companies that have made themselves into content companies, where now they deliver content with all of the new digital tools, those companies are very valuable,” said Roland DeSilva, managing partner of DeSilva & Phillips. “They're being sought after.”
With these improvements and an economy that is stronger than it was in 2008 and 2009, sellers are finally able to command reasonable prices, DeSilva said. “The companies selling in this market are getting fair prices and not the discounted prices like a lot of companies have gotten in the last couple of years,” he said.
While industry observers remain optimistic about M&A activity in the near term, it wouldn't take much to darken that forecast. One black cloud on the horizon is the credit market, which had stabilized but has become roiled by the recent gyrations in the global economic outlook.
“Credit markets are pretty uneasy right now, especially in the last few weeks with the upheaval in the stock market,” 1105 Media's Vitale said.