Content Matters

Jordan Edmiston Group has just published their year-end M&A Overview for the content industry.  For 2007, JEGI recorded 838 transactions worth nearly $108 billion.  The $108 billion figure is nearly equal to the total of the prior two years combined, and is an increase of 79% over the 2006 figure of $60 billion.

The news was mixed, though, as more than two-thirds of the deals occurred in the first half of the year, with about $33 billion worth in the second half as credit markets tightened.  While we can expect the slowdown to continue to impact large deals, JEGI indicates that middle-market deals continued at a brisk pace throughout the second half.

 

Not surprisingly, the biggest growth came in some of the hottest segments, including Online Media (306 deals worth $11 billion) and Marketing & Interactive Services (249 deals worth $31 billion).  The Marketing Services segment was led by the mega deals for ad networks, including Google’s $3 billion DoubleClick acquisition, Microsoft’s $5.7 billion deal for aQuantive, Yahoo’s $300 million deal for Blue Lithium and AOL acquiring behavioral ad network Tacoda for $275 million.

Newspaper deals were up by a third over 2006 with 45 transactions for nearly $14 billion.  But the story there was mixed.  While News Corp paid a premium $5.6 billion price for Dow Jones, most of the other deals came in lower than the sellers had hoped.  JEGI also indicates that there were fewer mid-market transactions than in 2006 when there were 74 deals in the industry.

The Database Information Services segment was up from $2 billion to more than $24 billion for the year, but the bulk of that is attributable to Thomson’s $18 billion acquisition of Reuters. 

Segments down this year include the trade magazine segment.  Despite Incisive Media’s acquisition of ALM for $630 million this year, b2b magazine deal value of $3.165 billion was barely half that of the prior year.  The consumer magazine segment faired much better, with nearly $7 billion in deals (almost four times that of the prior year) led by Primedia’s divestiture of its enthusiast group to Source Interlink and the sale of Dennis Publishing to Quadrangle.

Meanwhile, Berkery Noyes has just published its 2008 Outlook+Strategies report on the media and information industry.  Berkery sees a continued solid market for M&A but with a buyer’s market.  According to the report, the frothy multiples of recent years, where content companies sold for as high as 10.5x EBITDA have gone away and they project typical deals to be in the 4-6x EBITDA range. 

While the credit crunch has had some impact on private equity, Berkery notes that PE firms accounted for about a third of the content industry transactions in 2007, significantly higher than just a few years ago.  While the terms may change, they expect private equity to continue to play a significant role in deals in the industry.  They also expect lenders to return to the scene within 3-6 months after clearing some of the earlier mispriced deals.  The firm also expects that Wall Street volatility could lead to an increase in public-to-private transactions in 2008 and 2009.

 

As does JEGI, Berkery looks to the middle market as the active segment of the deal market in 2008, with a mix of strategic buyers and private equity deals.  They note that private equity firms in this space have raised   They are bullish on all facets of the media and information industry, seeing particular strength in the online marketing segment and b2b media, information and trade show markets.

In my opinion, it’s likely that 2008 will bring more of what we saw in the second half of 2007.  Deals will likely be smaller, due in part to the credit crunch and also due to the fact that many of the strategic buyers, such as Thomson and News Corp, will be busy digesting their large deals from 2007.  While private equity will see some impact from the credit markets, there’s still a lot of money sitting on the sidelines, though firms may have to put more of their own funds into a deal until lenders loosen the purse strings a bit.  The favorable exchange rates should continue to spark cross-border deals as American markets look cheap to European investors.  For sellers seeking the 10x multiples of recent years, it's going to be a long wait.