M&A Activity for 2008: Snowballing Shift to Digital Media

January 9, 2009

M&A deal value in 2008 for media, information, marketing services and related technologies dropped to $33 billion, while activity demonstrated that the “center of gravity” is quickly shifting from larger traditional media deals to mid-sized digital and data deals, reported (pdf) the Jordan, Edmiston Group, Inc. (JEGI).

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In Q4 2008, upheaval in the overall economy and financial markets, in combination with dire advertising market forecasts for 2009, muted the mergers and acquisitions market. Deal count and value declined 35% and 58%, respectively in Q4 2008 vs. Q4 2007. For the full-year, the 2008 deal count was down 13% and deal value was down 68% vs. 2007.

M&A Growth Sectors
M&A activity was led by the growth sectors of Marketing & Interactive Services, Online Media & Technology, and Database Information Services. Combined these three sectors accounted for 74% of total deals completed and 90% of transaction value in 2008.

JEGI expects this major shift in the industry to continue over the next several years, with a projected $.88 of every dollar of industry revenue growth flowing to four growth sectors: Database & Information; B2B online Media; Consumer Online Media; and Interactive Marketing Services.

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In contrast, only $.12 is expected to flow to traditional media in the same time period, JEGI said. This compares with $.67 of every incremental ad dollar flowing to traditional media sectors (newspapers, magazines, events, etc.) from 2001 to 2007, when only $.33 went to the four growth sectors.

Multiples

The stark differences in current and projected growth rates for traditional and digital businesses are reflected in M&A multiples, JEGI said. The four growth categories saw average revenue and EBITDA multiples range from 3.4x to 4.5x and 13.5x to 21.3x, respectively, in 2008, as compared to 1.5x to 2.4x and 8.0x to 8.5x, respectively, for traditional media sectors.

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Top 10 Transactions

Nine of the top 10 M&A transactions by size for 2008 were within the growth categories, including three in each of Database Information Services; Marketing & Interactive Services; and Online Media & Technology, with the largest being Reed Elsevier’s $4.1 billion acquisition of ChoicePoint in February. The only outlier was Cablevision’s $650 million acquisition of Newsday from Tribune.

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M&A Highlights:

  • With the largest transaction for the year at less than $200 million (the purchase of Randall-Reilly by Investcorp) the business-to-business magazine sector saw modest deal activity in 2008. Number of deals fell 46% to 22 total transactions for the full year, with only two deals in Q4, while total value declined 92% in 2008 vs. 2007.
  • Activity in the consumer magazine sector was slow as well, with 42 mostly smaller transactions, representing 25% fewer than in 2007. There were no substantial transactions for the year compared to last year’s sales of Emap, Gemstar and Primedia’s Enthusiast unit.
  • The database information services sector saw a 77% increase in number of deals in 2008 over 2007 with 46 total deals announced. Deal value nearly tripled for this sector in 2008 to $8.8 billion, from $3.2 billion in 2007, excluding the $18.3 billion acquisition of Reuters by Thomson in 2007. The most notable deal in the fourth quarter was Getty Images’ acquisition of JupiterImages for $96 million.
  • There was little activity in 2008 in the educational and professional publishing sector, which showed decreases of 26% in deal count and generally smaller transactions for the year vs. 2007. The most notable transaction in this sector was the sale of CQ Press to SAGE in May.
  • The exhibitions and conferences sector was the third most active M&A sector behind marketing services and online media, with 50 transactions in 2008. However, the sector showed declines of
    28% and 31% in deal count and transaction value, respectively, compared to 2007. The two mostsignificant deals of the year were VSS’s acquisition of Clarion events in February and Marketplace Event’s acquisition of dmg world media’s North American Consumer Home Shows in July
  • Marketing and interactive services was once again an M&A leader, generating about the same number of transactions in 2008 as in 2007 and totaling a healthy $12.3 billion for the year, although this was off 50% from 2007 levels. Among the sectors JEGI covers, we are especially bullish on marketing services and anticipate that the advertising slowdown will dramatically alter marketer spending patterns and surface many viable and compelling M&A opportunities, as well as unexpected buyers. This was evident in the fourth quarter with WPP’s announced buyout of TNS for $3.1 billion, Akamai’s $95 million acquisition of acerno, and Crain Communications’ acquisition of Staffing Industry Analysts.
  • The newsletter sector saw deal activity rise 33% and deal value increase slightly by 6% in 2008 vs. 2007, albeit off a small number of deals. One of the most notable transactions for the year was Haymarket Media’s acquisition of Compliance Week in July.
  • With 258 transactions worth $9.1 billion, the online media and technology sector continued to remain very active in 2008, even though the sector saw a 18% decline in number of deals and a 26% decrease in deal value in 2008 vs. 2007’s hectic deal pace. Major strategic buyers such as eBay, Gannett and Monster were active during Q4, acquiring companies to complement their current offerings. Additionally, Waterfront Media, an online health and self-help publisher, merged with consumer health online information company Revolution Health Network to create the largest online heath group by audience.
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