Media M&A on the rebound
By Mary E. Morrison
The b-to-b media industry has seen a recent surge in M&A deals, capping a year in which the sector showed signs of renewed strength. In just the first week of the new year, publishers announced these deals:
- Farm Journal Media acquired a majority stake in Commodity Update, a mobile media company serving the agriculture industry.
- Hanley Wood acquired Metrostudy, a provider of research, data, analytics and consulting services to the housing industry.
- MediaTec Publishing acquired Workforce Management from Crain Communications Inc.
- Nielsen Holdings acquired the Sports Licensing & Tailgate Show and the Tailgating Industry Association.
- PennWell Corp. acquired TransmissionHub, GenerationHub and related subscription and data businesses.
- Reed Exhibitions acquired the Agenda trade show for the streetwear and action sports industries.
- Yankee Publishing acquired McLean Communications, a provider of New Hampshire business, lifestyle and custom publications.
Dealmaking started to pick up last year after a slow 2011. Overall, the media, information, marketing and technology sectors logged 1,351 transactions last year, up from 903 in 2011, according to data from media investment bank Jordan, Edmiston Group. The combined deal value last year was $74.7 billion, up from $52.2 billion.
The number of b-to-b media deals increased to 34, from 14 in 2011, and total deal value grew more than eightfold to $411 million, from $50 million. Exhibitions and conferences again showed strength, with the number of transactions up 56% over 2011, to 50, and deal value up 94%, to $874 million.
Scott Peters, co-president of Jordan, Edmiston, noted that strategic buyers are again active after sitting on the sidelines for many years. “In the trade show sector, they're back and being aggressive about continuing to acquire and build,” he said. “Even in traditional b-to-b, we're seeing a good amount of interest pick up as well.”
Media and marketing executives recently surveyed by M&A firm AdMedia Partners are keeping their eyes open for opportunities, with 88% of respondents at companies with at least $50 million in revenue saying they plan to seek an acquisition target this year.
“The initial feeling this year is that it's going to be more robust,” said Seth Alpert, managing director of AdMedia Partners. “It looks like deals are coming back.”
Still, the first quarter of this year could be slower in the wake of last year's bigger-than-usual surge in tax selling, or deals driven by sellers concerned about imminent tax code revisions, said Evan Klein, managing director at investment bank Berkery, Noyes & Co.
“Anyone who could have gotten a deal done last year got a deal done—or tried to get a deal done,” he said. “If you couldn't sell or you weren't ready, you'll be faced with a new tax picture.”
But Klein said he is optimistic about 2013—even if it gets off to a slow start—because of increasing valuations. “They're not at the top, but they're at a point where they're close to being a fair value from the buyer's and seller's perspective,” he said.
Plus, barring any major unforeseen political or economic crisis, the fiscal debate that tied up Congress and the White House in late 2012 shouldn't be a factor this year, Alpert said. “At the end of the day, they didn't do something incredibly stupid; they resolved it,” he said. “While there's continued uncertainty, it's just what we're living with now. I would not expect any further downward pressure on M&A activity because of that.”
THE DIGITAL DIVIDE
While broader economic indicators suggest a recovery may be under way, prospective buyers will likely continue to be cautious and choosy this year. In 2012, robust companies attracted buyer interest and saw relatively good results in terms of EBITDA (earnings before interest, taxes, depreciation and amortization) multiples, Alpert said.
The recent annual AdMedia market survey found that overall multiples are flat to slightly down compared with the year-earlier survey. For “strong” sectors, including mobile, advertising technology, social, analytics, Big Data and digital media, at least half of respondents said multiples of 7x EBITDA or greater are reasonable. By contrast, 44% of respondents said multiples of 4x or less are reasonable for traditional media companies.
Buyers are less likely to forgive a prospective target's weaknesses than in the past, Alpert said, citing as an example a marketing services or media company that relies on one or two clients for a significant amount of its revenue. “In 2012, it had become much more difficult to sell a company with those characteristics, and valuations really took a hit because of it,” he said.
Deals that are getting done typically involve a target that has diversified its revenue mix by building pieces of the business that aren't reliant on advertising, said Seth Rosenfield, managing director at investment bank Petsky Prunier.
“The core strength of a b-to-b media company is its knowledge and focus on the market,” he said. “So you take that market position and focus on providing additional information and services to both the participants in the markets and also the suppliers to the markets [in the form of] everything from information to analytics to more marketing services.”
Though an appetite for acquisitions remains low among private equity firms that were burned by previous purchases or strategic buyers that are still figuring out how to transition their own properties from print to digital, there are exceptions, said Reed Phillips, CEO and managing partner of media investment bank DeSilva+Phillips.
”If the company is really strong and performing well—and is nicely transitioning to digital—then it becomes attractive,” Phillips said, pointing to Penton Media's recent acquisition of Farm Progress from Fairfax Media for $79.9 million as an example.
Another exception, he said, is the scenario in which buyers acquire particular parts of businesses.
One such example is MediaTec Publishing's acquisition of Workforce Management from Crain Communications, which publishes Media Business. MediaTec already published titles in the human resources category—including Chief Learning Officer, Diversity Executive and Talent Management Magazine—and saw Workforce Management as an opportunity to cover the entire transactional side of the human resources industry, said Norm Kamikow, MediaTec president and editor in chief. “It really completed the puzzle and enabled us to cover the end-to-end, hire-to-retire business of human resources,” he said.
The publications, along with a combined database and Web traffic, will provide significant strategic opportunities for the company and its advertisers, he said.
For Farm Journal Media, acquiring Commodity Update made sense on multiple levels, said Andy Weber, CEO of Farm Journal Media. The acquisition rounds out the company's media offerings, which include print, online, events, TV, radio and now mobile—an important channel for farmers, who are often literally out in the field rather than at a desk.
Weber said media companies must now consider end-users' pain points and how to address those difficulties, whether through acquisition or organic growth. “Media companies like Farm Journal have always reported on the industry rather than truly solving the industry's problems,” he said. “We're trying to identify pain points and create products to address those pain points. That's a whole different way for a marketer-based media company to think.”