The broad b-to-b media and information M&A market appears to be well on the path to recovery from 2009's dismal performance.
However, the outlook for the traditional b-to-b media sector isn't as clear. In fact, the market is so foggy that most prospective sellers are marketing their properties in private because they're unsure that buyers who will meet their price exist.
“There's still a fair amount of uncertainty, so no one wants to talk publicly,” said Michael Parker, managing director at investment bank AdMedia Partners.
“It's very quiet on the b-to-b front,” said Reed Phillips, managing partner at investment bank DeSilva & Phillips. “There may be a few small deals [in the second half of the year] but nothing of significance.”
“The cloud over the M&A environment is driven largely by uncertainty over the path of the economy over the next six to 12 months and the hands-in-pocket attitude of the banks,” said Richard Mead, managing director at investment bank Jordan, Edmiston Group. But Mead added that he expects activity to continue to recover in the second half of the year. “There will be a flurry of activity as entrepreneurs try to complete sales before the expected increases in capital gains tax rates in January 2011,” he said.
Reports released earlier this summer about overall b-to-b media and information M&A activity in the first half of the year showed a market in recovery mode, but not bustling.
The number of transactions in the first six months of this year in the media, information, marketing services and education markets increased 52% from the year- earlier period to 445, while the aggregate deal value surged 291% to $20.8 billion, according to a report issued by Jordan, Edmiston. The b-to-b media category saw similar gains, although it benefited from favorable comparisons with a historically weak first half of 2009. The number of deals in this category increased almost fourfold to 23, and the aggregate deal value jumped more than fivefold to $87 million.
The b-to-b online media and technology sector saw a surge in activity. The number of deals in this arena increased almost fourfold to 26, while the aggregate value rose more than fivefold to $363 million. Deals in the category included TechTarget's acquisition of BeyeNETWORK, an online network of sites, and Canon Communications' purchase of Pharmalot, a pharmaceutical industry blog.
The broad digital media space also saw a robust increase, according to a report from Peachtree Media Advisors. The number of digital media deals rose to 564 in the first half, a jump of 68% compared with the year-earlier period; the aggregate value increased 117% to $9.0 billion.
According to Jordan, Edmiston data, the average deal value for the first half was $46.7 million, a figure that was driven up by three large deals in the business information sector:
*Silver Lake Capital and Warburg Pincus' $3.2 billion acquisition of Interactive Data Corp.
*Madison Dearborn Partners' $2.5 billion purchase of TransUnion.
*MSCI's $1.9 billion acquisition of RiskMetrics Group.
While the business information sector is generating multibillion-dollar transactions, the deals in traditional b-to-b media remain small. The sector is roiled in an era of great change. “It's absolutely a transition period,” Phillips said. “There's more of a transition taking place in b-to-b media than I've ever seen before.”
“Online b-to-b media is still evolving,” Mead said. “The long-term model has not yet been fully baked, and there are mixed opinions about whether online will be as profitable as projected.”
The saga of Reed Elsevier's attempts to sell Reed Business Information is emblematic of the transition in the b-to-b media industry and in the M&A activity surrounding it.
Two years ago, Reed Elsevier placed RBI on the market and reportedly expected to sell the division for $2 billion. The bids came in at half that, so Reed Elsevier pulled the division off the market in December 2008 as the recession took hold.
Last year, Reed Elsevier announced that it was bringing pieces—mainly the controlled-circulation products—of RBI back to market. (Reed Elsevier planned to keep paid products, such as Variety, and information products, such as Reed Construction Data).
In the end, Reed Elsevier simply closed some brands. Others it sold to former competitors, such as Canon Communications, which acquired Packaging Digest and other manufacturing publications. Other RBI brands were sold in small deals featuring earn-outs to their publishing teams.
A group led by former RBI executives Rick Blesi and Tony Mancini acquired Construction Equipment, Professional Builder and other titles from Reed Elsevier. Similarly, former RBI executives John Langhenry and Steven Rourke bought Consulting-Specifying Engineer and other titles. Another former RBI executive, Brian Ceraolo, acquired Modern Materials Handling and other titles.
The divestiture of these controlled-circulation products signals an end to an era of large scale b-to-b media companies, some observers say. Reed Elsevier is not alone in divesting controlled-circulation properties. Cygnus Business Media last month sold its industrial brands to two former publishers.
“I don't see any reason why that's going to change,” Ed Fitzelle, managing director at Whitestone Communications, said of the trend. “I think that's going to continue. The Cygnus deal was a good example. I look at it as the industry going back to its roots.”
Fitzelle sees the b-to-b media industry going back to smaller companies with deep industry knowledge. But instead of focusing on selling print ads to bring buyers and sellers together, b-to-b media companies must now offer a variety of “marketing services”—including e-mail marketing and custom content creation—to their marketer customers.
This trend is apparent on the consumer side of print publishing, too. Hearst Corp.'s $325 million deal for iCrossing, an interactive marketing services agency, attests to that.
The changes in the b-to-b market have also brought new competitors that link buyers and sellers in different and often more direct ways. Hong Kong-based Alibaba.com is an online business that helps small companies find suppliers around the globe. Alibaba.com has said it plans to spend $100 million on acquisitions in the U.S.; so far this year it has acquired two e-commerce companies, Auctiva.com and Vendio Services.
In traditional b-to-b media, the current buyers typically are not the buyers of the past: large media companies or private equity funds. Instead, they are small b-to-b media companies that have no debt and are bullish on the business media and specific industry sectors.
One of these is Scranton-Gillette Communications, publisher of Roads & Bridges. Ed Gillette, president-CEO of Scranton-Gillette, said his company had previously focused on growing organically. But the drop in valuations for b-to-b media properties has enabled the company to make such deals as the purchase of Residential Lighting from Vance Publishing Corp. and the formation of a limited liability corporation with Blesi and Mancini after they acquired their construction and building industry properties from RBI.
“We finally feel like we can buy low and sell high,” Gillette said. &BULL;