ichard Mead, managing director of Jordan, Edmiston Group, discusses prospects for M&A activity in the business media sector in 2010.
Media Business: Do you think M&A activity in b-to-b media/information will increase in terms of deal flow and deal value in 2010 compared with 2009?
We speak regularly with a wide array of b-to-b media and information companies, including the large global corporations, and our strong sense is that 2010 will see a healthy uptick in both M&A activity and overall deal value in North America and also globally. Many strategic buyers that are facing single-digit organic growth are actively looking for acquisitions that will push growth rates into the double-digits. Private-equity platforms are likely to be sellers of b-to-b media and information assets, either as a delayed exit for a platform or to reduce their debt obligations within platforms. Those entrepreneurs who are keen to head for Hawaii—i.e.,
retire or take a break—will bring their businesses to market as soon as possible, after having put their exit plans on hold for the past two years. Another factor that should propel M&A activity in 2010 is the anticipated increase in the U.S. federal capital gains rate expected in January 2011.
MB: What sectors of b-to-b media/information will be the most sought after?
Any high-growth b-to-b media and information business that is situated in a robust and complex industry sector will have lots of suitors. Buyers are currently focused on recurring revenue (i.e.,
subscription-driven) models, as well as online lead generation, ad targeting and e-commerce products and services, which all help drive sellers closer to buyers at the time of their purchasing decisions. Leading advertising-driven marketing services brands—events, online and magazines (No. 1 in their markets)—are also attracting attention from buyers that want strong positions in key industry sectors. These assets will be attractive to buyers looking to invest in b-to-b media companies that are marketing-focused.
MB: Do you see private-equity funds making a resurgence as buyers of b-to-b media/information companies anytime soon?
Private-equity funds would prefer to focus on investing in growth assets rather than spend time and resources on financial restructuring. Private-equity funds looking to acquire b-to-b media assets will need to come to terms with the current financing environment, which requires a different acquisition financing model than the one they used in the mid-2000s. This includes investing a greater percentage of equity into each deal and paying a higher rate for debt, with stricter covenants. Financial discipline will lead to fewer tears all around. The core group of dedicated private-equity funds have been long-term investors in b-to-b media. They are recognized as savvy buyers and owners, and continue to be attractive sponsors for banks and other debt providers. M