BtoB Media Business - December 2008 - (Page 38)

Endnote By Richard Mead Prognosis for 2009: Mid-market M&A will continue, despite challenges ver the past decade, as the business world has become more complex, the b-to-b media industry has undergone a constant process of re-thinking and re-tooling the products and services it provides. By embracing new electronic channels for information delivery, b-to-b media companies have become more effective in meeting the information needs of their customers, providing what they want—when and how they want it. The value of the new delivery channels becomes evident when examining the average purchase price multiples paid in 2008. While database, information and b-to-b online media companies saw EBITDA multiples in the mid-teens or higher, b-to-b magazines were valued in the single digits. Behind the media industry evolution are several factors, including: ongoing consolidation, creating larger b-to-b media companies offering a more comprehensive suite of workflow solutions; a large capital injection through financial investors and lenders; and a steady stream of new ideas and products from media company entrepreneurs. The evolution has been facilitated by a strong M&A environment, which was “business as usual” through early 2008. Private equity (PE) funds were very active in seeking platform companies (i.e., those with adequate scale to stand alone in a new sector or vertical) and adding tuck-in acquisitions (i.e., smaller acquisitions that fit into an existing platform), although sourcing adequate debt to acquire b-to-b media businesses at market prices started to become a challenge. O target businesses, as lack of visibility is a major gating factor. In addition, PE platforms with existing debt are further constrained from making additional acquisitions, because lenders are insisting that any additional debt will require re-writing the terms of their existing loans to conform to current market pricing and covenants. For most PE funds, this is a nonstarter. Next steps History tells us that economic and business cycles are inevitable and even healthy for those companies that survive. Based on our experience over the past 22 years, we expect that M&A activity will continue in 2009, albeit at a slower pace, during this recessionary period. During the last recession of 2002/2003, JEGI closed 29 transactions, many of which were distressed businesses that are thriving today under new ownership. Based on our discussions, all indications are that the players in the b-to-b media industry are keen to return to a more active M&A market sometime in 2009. Entering 2009, many strategic b-to-b media companies have cash available to invest in acquisitions, as part of their long-term strategy. However, at the same time, we expect them to continue divesting businesses that are not core elements of their long-term growth strategies. Many PE funds have equity to invest to continue enhancing their b-to-b media platforms. They may be willing to make acquisitions with 100% equity, but will do so with the intention of recapitalizing those acquisitions with debt, as soon as it becomes available. We expect that some PE platforms will also be divesting noncore assets (i.e., those not essential to the on-going business’s product and service offerings), either to improve the overall business, generate capital for re-investment in core acquisitions or out of necessity. The global business community has never had more need for a solid b-to-b media industry to support it with quality information and efficient ways of bringing buyers and sellers together. The future of the b-to-b media industry is secure. However, given current financial considerations, it’s clear the landscape will continue to evolve and consolidate, resulting in fewer, stronger and more marketing-oriented b-to-b media companies. Richard Mead is a managing director of The Jordan, Edmiston Group Inc. (www.jegi.com), a provider of independent investment banking services for media, information, marketing services and related technologies. He can be reached at richardm@jegi.com. Even if capital were available today, private equity funds would be challenged to value acquisition targets, as lack of visibility is a major gating factor. New challenges for private equity Come summer, many lenders stopped lending, and those that continued turned more conservative. Mid-cap buyers who had been able to leverage acquisitions at 7x trailing 12 months’ EBITDA in mid-2007 saw multiples decline below 5x, including mezzanine debt, by Q3 2008. As a result, strategic companies became the primary buyers, completing 85% of the media and information transactions through Q3. Despite their recent inactivity, PE funds remain major participants in the b-to-b media industry and control a significant portion of the large companies, including former public companies: Incisive (Apax), Nielsen (KKR and others), Penton and Primedia (Wasserstein and MidOcean). For the most part, however, PE funds will remain hamstrung until lenders come back to the market. Even if capital were available today, PE funds would be challenged to value 38 | Media Business | December 2008 | mediabusinessonline.com http://www.jegi.com http://www.mediabusinessonline.com

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

BtoB Media Business - December 2008
Contents
'Media Business' Picks Top Online Videos
Publishers in Several Sectors Brace for Rough '09
Looking for a Vendor? Check Out These Lists
M&A
Events
Online
Production
Circulation
People
Benchmarks
Despite Slowdown, M&A Deals Will Get Done

BtoB Media Business - December 2008