BY SEAN CALLAHAN
Like other reports examining the media merger and acquisition outlook for this year, "The DeSilva & Phillips Report 2005" published Monday was bullish.
The media investment bank pointed out in its report that 124 deals were completed last year, 51% more than the 82 of 2003. "The sheer number of deals … exceeds anything we’ve seen, not just since the recession, but all through the boom of the second half of the ‘90s," the report said.
Nonetheless, the value of the deals DeSilva & Phillips tracked for the report grew much less dramatically. The aggregate value of the deals taking place in 2004 totaled $2.86 billion, 6% more than in 2003.
"The ’05 outlook is rosier even than ’04," said Reed Phillips, managing partner of the media investment bank, "because consumer magazines have had a strong rebound; and now I think we’re going to see an increase in b-to-b activity."
The centerpiece of the report is its D&P 15, which tracks the top 15 media deals of the past year. B-to-b and medical deals took three of the top five places. At the top of the list was Bain Capital’s purchase of M/C Communications, a medical conference company, for $450 million. At No. 3 was Investcorp’s $350 million deal for financial publisher Thomson Media. And at No. 5 was JPMorgan/Veronis Suhler Stevenson’s $130 million purchase of Medical World Communications (for the company they co-own, Ascend Media).
Analyzing the deals, the media marketplace and the overall economy, the DeSilva & Phillips report identified several trends in media deal-making.
First, strategic buyers were essentially absent from the market, which was driven almost solely by private equity money last year.
"The strategics stayed out of the market for a second year [as far as the largest deals were concerned]," the report said. "But the deal market no longer seems to depend on them in the same way. Financials, virtually alone, created the biggest middle market in years."
Second, the report described the growing power of the Internet, particularly search, and how it may yet transform the publishing landscape. In particular, the report noted how the rise of search has the capability to undermine the value of media brands.
"It’s not the power or authority or ‘reach’ of the media brand that matters," the report said. "Instead, it’s that Google informs both reader and advertiser that there are a couple of words running on a particular Web site at a particular moment. The brand equity belongs, say, to Google-not to the media it catalogues."
Third, the report documented that EBITDA (earnings before interest, taxes, depreciation and amortization) multiples are increasing. For instance, multiples for b-to-b media deals greater than $50 million were about 9.5-10x in 2003-04, compared with 9.2x in 2001-02.
These trends point to a robust 2005, the report concluded. The fourth quarter of 2004 was by far the best of the year. Fourth-quarter deals comprised 43% of the year’s volume, and the deal flow was a 253% improvement over 2003. The DeSilva & Phillips report said the company expects that momentum to continue into 2005.