Marketing and Media M&A Expected to Remain Strong in 2013 Finds Annual AdMedia Survey

Strategic buyers expected to increase activity more than private equity; interest in "hot" areas sobers, but overall appetite to expand remains high; mobile cited as top disruptive trend

"Most of our respondents seem to feel this will be a good year for both buyers and sellers, now that the election has passed and some uncertainty has lifted," said Seth Alpert, Managing Director at AdMedia Partners. "At the same time, our eyes remain fixed on the economy. Congress will be the biggest wildcard and have a tremendous impact on all businesses, in addition to M&A activity for the media and marketing industry."
-Seth R. Alpert, Managing Director

AdMedia: M&A activity expected to remain strong

Mergers and acquisitions in the media and marketing industries are expected to be driven by strategic buyers more than by private equity this year, according to a survey by M&A firm AdMedia Partners.

While financial buyers remain significant players, their growth in activity is slowing compared with strategic buyers, the survey found. According to the report, which surveyed 7,400 senior executives at content, marketing services and marketing technology companies online in November, 81% of respondents indicated that acquisitions by strategic buyers will increase.
-Seth R. Alpert, Managing Director

AdMedia: So, Here's the Deal for 2013

Poll shows media, agency execs foresee a healthy marketplace.

Not robust, but healthy with more reasonable prices. That's how leaders of marketing firms and media outlets view the 2013 marketplace for mergers and acquisitions, in a new poll from AdMedia Partners.

Agencies are mainly on the lookout for deals that will bolster their capabilities in mobile marketing, analytics and social media marketing, while their media counterparts seek help primarily in digital, custom content and app development. Accordingly, the prices that potential buyers deem reasonable for players in these hot fields are higher than those for anything old school, be it an ad agency, public relations firm or magazine. For example, buyers expect to pay up to seven times earnings for social media companies this year, but less than five times earnings for PR firms.

Tempering the optimism reflected in the poll's findings are concerns about the economy and political wrangling around the national debt. And while some respondents remain bullish about the M&A market, given some positive economic indicators recently, AdMedia's Seth Alpert is less certain about the road ahead.

"For 2013, the biggest wild card seems to be the economy," said Alpert, a managing director at AdMedia, a boutique M&A firm in New York. "For example, if Congress decides to let the U.S. default on its debt by not raising the debt ceiling, we may see significant global economic disruption. That would have a significant impact on ad spending and pretty much everything else."
-Seth R. Alpert, Managing Director

RBI puts Variety up for sale
"I think Reed Elsevier has decided it doesn't want to be in the magazine business anymore," said Mike Parker, managing director of AdMedia Partners.
-Michael E. Parker, Managing Director

Poll: M&A Activity Will Rise in 2012; AdMedia's Seth Alpert talks to Adweek about the findings
By Andrew McMains

AdMedia Partners' annual poll of marketing agencies and media outlets reveals a healthy appetite for acquisitions, with 59 percent expecting to participate in a deal this year−up significantly from 40 percent a year ago.

In particular, respondents expect much more activity among strategic buyers. Seth Alpert, a managing director at AdMedia, a boutique M&A firm in New York, discussed the poll findings and why, despite the anticipation of more deal-making this year, agencies and media companies remain anxious about the economy.

Adweek: What's driving the significant uptick in the percentage of respondents who expect to sell their businesses this year (48 percent versus 36 percent a year ago)?

Seth Alpert: It's indicative of sellers who've been on the sidelines through what looks like tough times in terms of multiples. Multiples have come back, activity is up and if I've been waiting since 2009 to sell because the environment wasn't great, I'm probably feeling pretty good about being a seller in 2012.

Do you agree with the finding that valuations will remain strong?

Valuations in 2012 will be just as good as or maybe even slightly better than in 2011. We all have in our not-to-distant memory times when valuations were completely meshuganah−if you can tolerate a New York word. I don't think they're going to be meshuganah (this year), but clearly there will be deals where there are remarkable valuations in certain arenas and not in my view for agencies. There will deals that are emblematic of fantastic multiples of revenue−not in EBITDA−in tech. When I say, "tech," I mean media and advertising tech. And I think there will be potentially some similar deals in the content arena. If you think about Huffington Post going for about seven times revenue to AOL, it really feels like an outlier. But I think there will be other deals in 2012 that involve public companies paying multiples of revenue for hot online content companies.

On balance, will 2012 be more of a seller's market?

It will be more of a seller's market than it had been. Yeah, absolutely. There will be a greater diversity in kinds of buyers. As we discussed earlier, the multiples will be the same or better than they were last year. So, it's probably a better time to sell than it has been for a little while, relatively speaking.

Why are strategic buyers expected to be more active than financial buyers?

Strategic guys have been the ones who have been more on the sidelines. So, the growth from them year over year would be naturally higher. The private equity world−which is the synonym for financial buyers here−has been extremely active and has taken advantage of the fact that the strategic competition has been largely absent since Q4 2008. So, it doesn't mean that the respondents felt that there would be more M&A by strategics than by financials. It just means that there will be more growth in strategic acquisitions.

Why is it a good time to buy?

There's a lot of cash sitting around. The buyers are feeling more secure about their own businesses. Things are stabilized. The economy looks like it's not going to go to hell−this week. Don't ask me about next week.

In a recent RSW/US poll, agencies were more optimistic about the economy and client spending than marketers. Your poll draws a flattish picture of the economy, with maybe a modest upward bump.

Yes. People are cautious because they've had some bad experiences over the last couple of years. And we've watched and waited for the economy to improve and it hasn't been the way we all hoped that it would. So, after you've gotten punched a couple of times, you're probably a little shy about sticking their neck out.

So, we're not on the ledge like we were a few years ago, but we're not out buying new houses and expensive cars either.

No, we're not. ... In fairness, I don't think anyone really knows what's going to happen in 2012. But the mood is cautious and understandably so because of a lot of unpredictable things that could happen. There are things outside of the control of anyone in the U.S. that can have a big impact on the U.S. economy. I'm not surprised (that) clients are talking cautiously and planning cautiously and I think that the agencies really would like something different. So, they are comforting themselves by saying, "It's going to be better." And for some of them, it will be better. And for others, it will be worse.
-Seth R. Alpert, Managing Director

Bullish M&A forecast for new year
"It is very positive with a couple of little caveats," said Seth Alpert, managing director at AdMedia Partners. Alpert pointed out that traditional b-to-b media may be less active due to its low EBITDA (earnings before interest, taxes, depreciation and amortization), with 69% of respondents expecting EBITDA multiples for b-to-b media to be 6x or less. Meanwhile, 64% of respondents in social marketing expected a 7x EBITDA or greater this year.

"I would read that as saying traditional business media companies are going to be very hard to sell," Alpert said.
-Seth R. Alpert, Managing Director

In what industry observers described as a surprising development, Andrew L. Goodenough has resigned as CEO of Summit Business Media, which serves the insurance and financial services markets, to "pursue other interests." Thomas Flynn, Summit Business Media's CFO-COO, will serve as interim CEO while the company searches for a new chief executive.

"It's very much a surprise to me as it is to everyone else," said Michael Parker, managing director at AdMedia Partners.
-Michael E. Parker, Managing Director

Pressured by activist shareholders, McGraw-Hill opts to split company
Standard & Poor's decision to downgrade the U.S.' credit rating and the fallout it created may have triggered the additional pressure. In that case, the move may have been made to protect the education group from bad publicity stalking S&P. "These are businesses that are not dependent on each other," said Mike Parker, managing director of AdMedia Partners.
-Michael E. Parker, Managing Director

Bloomberg gobbles up micro-news sites
"Everyone is looking around for additional sources of revenue that are in anyway complementary to what they're doing," said Michael E. Parker, managing director at media investment bank AdMedia. "Bloomberg is making a considerable investment toward future revenue sources."
-Michael E. Parker, Managing Director

St. Louis, birthplace of perhaps the first search marketing firm and Twitter creator Jack Dorsey, stepped into the spotlight again Wednesday with two developments: the acquisition of interactive shop The Loud Few by marketing agency Moosylvania, and the creation of a new customer engagement agency, Ansira, out of 92-year-old NSI Marketing Services' acquisition of Dallas-based analytics firm Razor five months ago. [...]

Ansira has more than 475 employees and annual revenues in excess of $70 million, according to AdMedia Partners, which served as financial advisor to Razor in the January sale.

Stake-Taking Tops Buying: Sellers seek quicker growth through micro deals
While leaving equity on the table is hardly a new strategy in the realm of mergers and acquisitions, MDC nonetheless deserves "credit for coming up with a way of presenting a package that looks very attractive to certain kinds of entrepreneurs who love their independence and are able to retain it to a very large degree," said Seth Alpert, a managing director at M&A firm AdMedia Partners in New York. Alpert compared Nadal's approach of taking majority stakes and leaving equity with principals as "similar to the private equity model, and he ends up with a portfolio. But the key difference is he's not a re-seller."
-Seth R. Alpert, Managing Director

Google Closes In on Next New Networks
Industry executives speculate that online-media companies focused on niche areas like business, fashion and pop culture could draw interest.

Still, "traditional buyers in the media business are still looking for companies which are actually making money, which has been a problem for them," said Seth Alpert, managing director at AdMedia Partners, a New York investment bank that specializes in mergers and acquisitions in the media business.

"There's been a frustration that there hasn't been anything great to buy ... Given that, finding someone else that would pay the multiple that was paid for the Huffington Post would be really hard," he said.
-Seth R. Alpert, Managing Director

Observers believe most of the industry's debt issues have been worked out. "Going into 2011, I think there is reason for optimism," said Mike Parker, managing director at AdMedia Partners.

"It appears that the economy is getting better. There seems to be a level of confidence that wasn't there a year ago in terms of clients making decisions to go to market. I think most of the distressed sales are over and done with."

Parker's firm conducted a survey of executives at media and marketing companies in November that found a majority of respondents agreed that M&A activity will increase this year. For example, 78% of the executives at content companies who responded to the survey expect M&A activity to increase for strategic buyers, while 63% expect M&A activity to increase for financial buyers.

The optimism about the M&A market seemed predicated on the respondents' equally bright outlook for the economy: 97% said they expected the economy to be stronger or the same this year compared with 2010.
-Michael E. Parker, Managing Director

Dentsu Exits Talks to Acquire AKQA
"To sell AKQA, you would be looking for a new buyer -- one that is off the beaten path," said Seth Alpert, managing director for investment bank [AdMedia] Partners. "The old buyers are either unable or unwilling to pay a premium to acquire AKQA."
-Seth R. Alpert, Managing Director

Media sector is coming back

Seth Alpert is managing director and a partner at media investment bank AdMedia Partners.

Media Business: How is the media M&A market shaping up for the rest of the year?

Alpert: The basic environment for the media sector is improving the market is coming back in a nice way as illustrated by UBM's acquisition of Canon Communications. Companies that are thriving despite the economic environment, showing growth and managing their margins, are attractive targets and will command decent multiples.

MB: How big are the appetites of traditional media companies for marketing services organizations?

Alpert: The interest level is up. It started in 2007 with Meredith Corp. buying up some digital companies and was followed up this year with Hearst's acquisition of iCrossing. Other large publishers are intrigued because they see marketing services as a growth business and are coming to believe that it offers another way to serve their advertisers.

MB: What are some of the M&A trends you're seeing in the digital arena?

Alpert: On the media side, I'm still looking for the middle market to develop. Most digital media deals have been either very big or very small, and there's been very little in between. As digital media companies with $10 million to $200 million in revenue and good margins develop and are put up for sale, I think we will see a surge in middle market digital media deals.
-Seth R. Alpert, Managing Director

UBM acquires Canon Communications for $287 million.
"This is a real positive sign for b2b media mergers and acquisitions," said Mike Parker, managing director at investment bank AdMedia Partners. "This was definitely not a distressed property sale."
-Michael E. Parker, Managing Director

Based on what has been made public, Michael Parker, managing director of AdMedia Partners, which specializes in media mergers, says: "I'm a little surprised that, shall we say, major players haven't come into this arena, at the very least to take a closer look. Newsweek has huge brand equity in the marketplace, a wonderful reputation editorially." But, he says, potential buyers must be asking: "Who's going to do it better if The Washington Post Company can't figure this out?" The company has owned the magazine since 1961.
-Michael E. Parker, Managing Director

Publishers See Stock Price Uptick. New cost structures, greater confidence spurs reverse in stock undervaluing.
"It seems to me that what is going on here to a large extent is that investors simply viewed these companies too negatively a year ago," Seth Alpert, partner and managing director at AdMedia Partners, says about the overall gains realized among public publishing companies. "As confidence, and to some extent revenue and profits, has improved, so have their share prices.

The "great unknown" Alpert says, is whether the reviving economy will continue to bolster these stock prices in line with current investor expectations, or if investors will "again decide that they are overpriced and drive share values back down." "If you look at a 52-week chart for any of these companies you will see pretty high price volatility, a clear reflection of investors' uncertainty about the prospects for these businesses," he says.
-Seth R. Alpert, Managing Director

Privately held Bloomberg said the annual growth in its terminal business, in this difficult time for the financial industry, is about 2%. "They're selling to an audience that's been significantly depleted over the past year with various casualties on Wall Street. I don't think they're selling a lot to Lehman Brothers anyway," said Seth Alpert, partner-managing director at media investment bank AdMedia Partners. [...]

"If anybody can make BusinessWeek work, it's them," AdMedia's Alpert said.
-Seth R. Alpert, Managing Director

The reaction of Standard & Poor's Ratings Services to Penton Media's pre-packaged Chapter 11 bankruptcy filing last week was to downgrade Penton Media Business Holding's corporate credit rating to D.

Other industry observers had a more positive impression of Penton and its future. "It's really not surprising," said Mike Parker, managing director at AdMedia Partners. Advanstar, Cygnus Business Media and Questex Media have either financially restructured or filed for bankruptcy protection in the past year. "I don't think that this is the last we've heard of these situations," Parker said.
-Michael E. Parker, Managing Director

2010 could mean the return of the strategic acquisition.
"What we saw more going on than we would [have] liked were distressed transactions--BusinessWeek was the primary example," says Seth Alpert, partner and managing director at AdMedia Partners. "If you're a seller, you're just looking to get out from under. If you're the buyer, you're hoping your infrastructure and knowledge will turn someone else's losing business into a money making business." [...]

But the size of digital companies can be a problem--many are either too small to be attractive or too large to be swallowed by a publisher. "It appears that the digital media world is like the opposite of the bell curve--there are a whole bunch of people at the tiny end, a certain number of people that are at the high end, and then very little if anything in between," says Alpert. "That's not what you would expect in most industries. There is no middle in this market."

But while publishers debate "build or buy" when it comes to ramping up their digital business, it may be harder to get deals done, particularly if a publisher is trying to buy a digital startup. Alpert cites digital marketing agency iCrossing, which turned down a $250 million offer from Hearst.

"Larger digital properties view their companies as very valuable-more so than a magazine publisher," says Alpert. "That makes it problematic for publishers to buy companies because they will be paying valuations that may exceed their own."
-Seth R. Alpert, Managing Director

The U.S. arm of Japan's biggest ad-agency network, Dentsu Holdings USA, has acquired New York-based Innovation Interactive, which owns digital agency 360i, search firm Search Ignite and analytics and targeting practice Net Mining. And that means there's one less digital agency of scale on the market.

"I think digital is where the growth is right now, so if you want a major presence in U.S., there are a smaller number of agencies out there," said Seth Alpert, managing director of New York-based [AdMedia Partners], an investment bank that specializes in ad and marketing deals.
-Seth R. Alpert, Managing Director