Hot off the press
If 2007 was the year of the media mega-deal – typified by the £13.5 billion acquisition of Reuters by the US-based Thomson Corporation – 2008 could see mid-market mergers and acquisitions get their place in the sun.
M&A Insights, an authoritative report from PricewaterhouseCoopers (PwC) co-authored by Olivier Wolf, says that, although the credit crunch has driven many potential buyers to ground, the year ahead is likely to remain busy.
Some speculative investors, typically the high-rolling private equity houses, have been left holding the media baby – stitched into their investments and unable to exit without risking a massive financial ‘hit’.
Their most likely response, Wolf and the PwC team argue, is to add value to the holdings they already have, adopting buy-and-build strategies in the expectation of enhanced profits from a future sale.
Wolf, a London-based partner with the international business adviser, says: “In terms of value, 2008 might not match 2007, but in terms of volume there is still plenty going on.”
Like others in his field, he remarks that the activity is triggered by the rush to digital media, epitomised by Time Warner’s headline-hitting $850 million (£656 million) acquisition of Bebo – a Facebook rival created by a British computer programmer and his American wife.
“It’s an example of the sort of thing we are seeing – another digital deal,” says Wolf..
But the bulk of the forecast activity is likely to come in the so-called ‘old media’ – the disposal of tried and true trade publications, household name titles that their current owners believe may either have run their course, or perform better under different management.
The last 15 months has been littered with M&A activity as publishers have eschewed the world of ink in favour of new media. Pillars of the sector like Emap and Reed Elsevier are turning their backs on the traditional magazine model, which is heavily reliant on notoriously capricious advertisers, and are drawn instead to the fast-maturing online publishing world, attracted by a low-cost medium and a verifiable ROI on advertising spend.
Wolf believes many more deals remain to be done although vendors often retain growth businesses like events and exhibitions divisions. So where are the buyers coming from? What persuades a purchaser there is money in titles being jettisoned by the veteran publishers?
Building the brand
Stuart Sparkes, who leads the media M&A advisory team at Deloitte’s believes he has the answer: brand value. “The reason people are still buying is because the publications that are being disposed of generally have a good brand image, which can be transferred into other areas, such as online media or entertainment,” he points out. “It is possible that the acquirer will be better placed to do this than the seller.”
So maybe it’s too soon to nail down the coffin on traditional magazines. Says Sparkes: “It’s an area I have focused on for years and is now in the spotlight. There are assets changing hands and at some impressive prices.
“Broadly speaking, these are businesses that have shown a lot of resilience over the years and most of the better ones have done an excellent job of migrating to a vertical market focus
– not just in print, but also online, and in event management.”
Certainly money seems to be no obstacle for buyers with an eye on a target. HGCapital, for example, recently disposed of Clarion Events, whose £45 million MBO it had backed in 2004, to US-based Veronis Suhler Stevenson for a very respectable £120.5 million, and Ocean Media, the magazine publisher and exhibitions organiser, was sold to AAC Capital Partners for a sum said to be in excess of £100 million.
Far from feeling hard done by, ACC Capital’s managing partner Paul Southwell seemed rather pleased with the purchase, stating on Ocean’s website: “This is a highly attractive business for us. Ocean is very well placed in its niche markets having magazine and exhibition businesses which address both trade and consumer sectors.
“There are significant growth opportunities, which we believe the MBI team have the experience to take full advantage of Ocean’s titles include trade and consumer magazines, including Access All Areas, Bridal Buyer, Inside Housing and Build It. Said Sparkes: “There are still buyers out there eager for print assets, but it’s just that, with the current state of the market, prices will tend to be lower.”
The latest and most mouth-watering offering is Reed Business Information (RBI), publishers of more than 100
Reed Elsevier has reportedly pinned a $2 billion (£1 billion) price sticker on the business, and the list of potential buyers is impressively long – reportedly including Guardian Media as well as venture capital houses Apax Partners, Candover and Cinven.
While these organisations may clearly see value in the business, one rival publisher apparently retorted that it had no interest in ‘orphaned print products’. There is also the possibility that such a large asking price could stick in the throat of potential buyers, so the possibility remains that RBI will be hived off in bite-sized chunks.
Trade buyers
All of this points to the prospect that 2008 will be, as Sparkes predicts, another busy year, with opportunities arising that will be created, at least in part, by the difficult economic climate.
In the recent past, private equity has held all the cards thanks to its ability to up the ante using readily available debt and freeze trade buyers out of the game. This time around, says Sparkes, the boot is on the other foot, as private equity houses find funds are too scarce to allow them to compete in the M&A arena with their corporate rivals.
Paul Zimmerman, a Deloitte M&A partner specialising in the media sector, says private equity houses are nothing if not pragmatic.
“The corporate guys looking to make acquisitions have been consistently
outgunned on price by private equity over the past few years,” he says. “The trade buyers may now see more opportunity to compete in the current market.”
Zimmerman adds: “No-one should infer that the mid-market has closed up. That is just not the case.”
Tuning in to deals
Broadcast media deal activity is likely to remain significant in 2008, say Tim Parker and Colin Howes, media specialists and partners in London-based law firm Harbottle & Lewis.
The sector is in a state of change due to many independent production houses on whose output established broadcasters now rely.
“There is much change and consolidation in the £5-£50 million range...”, says Howes, “...driven by changes in the way broadcasters are required to commission from independent producers and new markets for content.”
Most activity is generated by the presence at the top of the food chain of around half a dozen ‘super-indies’ – large, sometimes publicly-quoted independent production outfits that constantly seek acquisitions to keep shareholders and VC investors happy.
Because of this, says Parker, the pool of targets is smaller, although you do see new talent coming through when the lock-ins on previous deals fall away.
“The business model of the super-indies requires them to keep moving. Once they stand still, they fail.”