BtoB Media Business - September 2008 - (Page 13)

M&A REPORT Strategic buyers seize the deals Tight credit market contributes to downturn in private equity purchases BY SEAN CALLAHAN T A he story of Entrepreneur Media’s abandoned sale to private equity firm Austin Ventures reflects, in microcosm, the current state of the mergers and acquisitions market for b-to-b media. ket. “I think that what’s impacting deal volume is first the credit issue,” said Reed Phillips, co-managing partner of media investment bank DeSilva & Phillips. “That’s mostly impacting private equity firms and not as much with strategic buyers.” Reed Elsevier’s $4.1 billion acquisition of database information company ChoicePoint, which was the largest media M&A transaction in the first half of 2008, seems to prove Phillips’ point that strategic buyers, rather than private equity firms, have the financial power to get deals done in the Shortly after Austin Ventures agreed to buy Entrepreneur Media, the deal fell apart. In late July, Entrepreneur Media CEO Peter Shea wrote an internal memo that blamed, in part, the credit market for the collapse. He wrote, “The debt market has made it a very difficult market for buyout funds to raise debt financing at a reasonable multiple and percentage rate.” Industry observers agree that the tight credit market has been a key contributor to the sluggish b-to-b media M&A mar- ANALYST INSIGHT current climate. So with a $4.1 billion deal being consummated, just how sluggish is the media M&A market? Well, it wasn’t as weak in the first half of this year as some had feared. The number of media deals overall actually increased in the first half to 404, up from 397 in the first half of 2007, according to data supplied by Jordan, Edmiston Group. The weakness in the market revealed itself in the combined deal value, which plummeted nearly 65% to $23.2 billion, from $65.8 billion in the first half of 2007, according to Jordan, Edmiston. The firm’s data indicate that a key driver of the decline in deal value was an absence of blockbuster transactions. There were only four deals valued at more than $1 billion in the first half, compared with 11 in the first half of 2007. “The credit crisis has certainly affected deal flow/value, as lenders are offering reduced leverage to potential buyers and lenders are stricter in their due diligence, meaning they will pass on financing companies that fail the quality and profitability test,” said Michael Marchesano, managing director of Jordan, Edmiston. “As a result, the appetite for bulge-bracket transactions has fallen off significantly, with the exception of a few transactions, like Reed’s acquisition of ChoicePoint.” Smaller deals popular in first half of ’08 former McGraw-Hill executive, Ed Fitzelle worked at our newsletter. MB: Business information seems to be much more attracmedia investment bank AdMedia Partners for eight years before joining Whitestone Communications in 2006. tive than traditional advertising-driven business media to Media Business: How much did the credit crisis impact investors. Why is this the case? deals in the b-to-b media sector in the first half of 2008? Fitzelle: I don’t know if it is. Certainly, that’s the percepFitzelle: In deal value, we haven’t seen tion. If you look at advertising numbers and ED FITZELLE pages, advertising has been in a cyclical many of the big deals in the first half. Our Managing “Who’s Buying Whom” kind of showed that. I downturn. I think the subscription-based director don’t know if it’s the credit crunch or oil prices products make people feel much more comWhitestone that have put us in a situation where people fortable than the cyclicality of advertising. Communications are much more cautious. The big deals that Look at Reed Elsevier (a company that has need major financing are not getting closed. What seems to placed its Reed Business Information unit, which consists be happening is the private equity guys are doing deals that largely of advertising-based magazines, on the block). You they’ve targeted and that they could do without needing to don’t have to scratch the surface too deeply to see that go to the banks. Reed people and the Elsevier people really like MB: The number of deals actually went up in the first subscription-based businesses. MB: McGraw-Hill Cos. has spent the past 20 years shedhalf, even though the value of the deals declined. What’s driving this? Is the b-to-b media and information market still ding advertising-based businesses but is said to be interestattractive to investors? ed in Reed Business Information. Why? Fitzelle: I think very much so. What I always talk about is Fitzelle: They’re in two big markets—education and fithe microeconomic relationship between the information nancial services—and both of them have some uncertainty providers and the readers. That’s what all the value of b-to-b that wasn’t there before. If they are looking at Reed, they media is based on. If we provide information that you can use could be happy with it. They’ve been successful in that to make money, you’ll keep reading our publication or buying area in the past. They’d be comfortable with it. mediabusinessonline.com | September 2008 | Media Business | 13 http://mediabusinessonline.com

Table of Contents for the Digital Edition of BtoB Media Business - September 2008

BtoB Media Business - September 2008
Contents
CNET Networks' Portal Gets Major Revamp
Candid Comments About CMS Deployments
Stategic Buyers Led the Way in the First Half
Digital Technology Helps Pump Up Revenue
Sales &�Marketing
Events
Circulation
Production
People
Benchmarks
Endnote

BtoB Media Business - September 2008