digital acquisitions (bea 2008)
DESCRIPTION
Provides publishers with a way of looking at the value of acquiring digital businessesTRANSCRIPT
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How much is that web site worth?
Considerations for buying specialized content and targeting niche audiences
A presentation for BookExpo AmericaBrian O’LearyMay 29, 2008
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Overview of this afternoon’s presentation
Why should publishers think about acquiring specialized content and niche audiences?
What digital investments make sense for publishers?
How do you value a web business?
Historical and current estimates of purchase prices
Other considerations, including alternatives to outright purchase
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Understanding your engagement with this topic…
Active in looking for and evaluating potential acquisitions?
Knowledgeable but not necessarily active in acquisitions?
Not fully versed but see this as an emerging area?
Just getting started and glad that BEA included this presentation in the program?
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Why think about buying niche audiences?1
Information, eyeballs and individual bandwidth are moving to the web across a growing number of devices
More and more tools are available to: link content “chunks” to one another; refine and aggregate content; and respond to/refer content
Community tools give everybody a chance to be an author or even a publisher
It’s also a period of shifts in format, and the roles publishers play are evolving
1The argument presented here is adapted from Shatzkin, “End of General Trade Publishing Houses: Death or Rebirth in a Niche-by-Niche Battlefield”, 2007
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The pace of activity has accelerated over time
New York Times buys About.com
NewsCorp buys MySpace and (later) Beliefnet.com
Amazon buys Audible
Meredith buys New Media Strategies, an interactive “word of mouth” agency
Hachette (Magazines) buys Jump Start Automotive Media to align with Car and Driver, Road & Track
CondeNet acquires travel blogs HotelChatter.com, Jaunted.com
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Developments extend well beyond acquisitions
Seventeen partners with Jango to offer customized internet radio
CBS acquires CNET (a mix of tech, gaming, business and food verticals)
The content for the June 2008 issue of Budget Travel is generated entirely by its readers
MediaBistro offers courses on how to “Be Your Own Book Publicist”
A carpenter develops a fine woodworking crafts site as a vertical eBay
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A niche example: scrapbooking tools and templates
Site Business model
Theshabbyshoppe.com Product sales, downloadable designs
Rakscraps.com Ad-supported community; share designs
Peppermintcreative.com Product sales using PayPal
Escrappers.com Sells design templates; some free downloads
Digitalfreebies.com Subscription-based downloads
Designerdigitals.com Product sales, including a CD service
The development of these sites suggests that niche content areas are starting to shift content consumption and engagement to a
different and more complex model.
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Certain publisher roles won’t change
To serve as a sentient member of a community
To know what a community of readers needs or wants
To know who can create valued content
To manage the processes of content development and delivery
To reach the potential audience with an author’s work
What WILL change (and is changing now) are the tools, techniques and formats used to serve those roles.
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The challenge: market understanding and engagement
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The prevailing publishing model
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An emerging publishing model
Authoring/recombinant
Marketing and promotion
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The digital investments that make sense should …
Strengthen your ability to understand what a community needs or wants to read
Provide credibility (brand) with a community you want to serve
Expand your understanding of who can write or create content
Help better manage the development and delivery of content
Extend your marketing reach with potential audiences
Help you advance or redefine your competitive strategy
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Ask first: What would we do with this property?
Sell books directly?
Promote the books we have?
Leverage content into community?
Leverage community into content?
Change the rules of the game?
Knowing your goals guides your thinking about what acquisitions make competitive and financial sense.
Increasing strategic
importance and value
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Then, map the target to your publishing value chain
1Adapted from Bide, Shatzkin et. al., “From N to X: The Impact of Online Networks on the Publishing Value Chain”, 1997
Publishing functions
Look at valued-added activities
Different from functions and structures
Assess how a target firm can help you in one or more value-added activities
Assess how you can help a target firm (leveraging your competitive strengths in one or more parts of the value chain)
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Linking acquisition objectives and the value chain…
Objective Core activities Potential investments
Understand what a community needs/wants
Refined / updated aspect of content acquisition and development
Social networking
Web analytics
Build credibility in desired markets
Expand the universe of potential authors
Content acquisition Existing vertical communities
Better manage content development and delivery
Content development
Product development
Operations (manufacturing, warehousing and fulfillment)
User-generated content communities
Emerging or established recombinant content sites
Subscription content sites
Extend marketing reach Marketing, promotion and sales
Other revenue services
Behavioral profiling
For purposes of presentation and discussion; not intended to serve as an exhaustive list of potential investments.
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When should publishers think “buy” rather than “build”?
The content and/or community is in your area and already built
The digital property provides a distribution channel through which you can sell existing assets
Content in the web community could benefit from delivery in book form, something you can do and they can’t!
Required skill sets inside your firm are not available and would require lead times to develop and operate
Underlying technology of the acquired firm holds promise for your business, as well
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Two examples of what it takes to build …
Source: Advertising Age; Crain’s New York Business; industry conversations
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So how do you value a web business?
The importance of sustained revenue growth is sometimes underestimated. Research has shown that very few M&A deals succeed
on cost reduction alone.
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Adapted from “The fine art of the friendly acquisition”, Aiello and Watkins, Harvard Business Review
Typical (high-level) acquisitions process
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What makes a publisher an attractive buyer?
Can move quickly, with a reputation for getting deals “done”
Strategic (the target company both provides and derives benefits)
Reputation for treating acquired companies fairly
History of successfully integrating acquired businesses
Financing capacity, including stock appeal (when stock is used to pay for the acquisition)
Source: “The fine art of the friendly acquisition”, Aiello and Watkins, Harvard Business Review
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Recent and expected state of the media M&A market
*Media investment banks; contact information is provided later in this presentation.
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Historical and projected (median) EBITDA multiples
Source: “Prospects for Media Mergers and Acquisitions: 2008 Market Survey”, AdMedia Partners, 2008
“Traditional media property multiples are being suppressed not by the fundamentals, but by the relative growth prospects of online media and the willingness of strategic and financial buyers
to put money to work in that sector rather than traditional media.”
- AdMedia Market Survey respondent
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Estimated 2007 EBITDA multiples by vertical
Vertical Estimated 2007 spreads
Social networking 9x – 16x
Lead generation 7x – 15x
Online ad networks 10x – 18x
Consumer mags over $100 mm 10x – 13x
Consumer mags under $100 mm 7.5x – 9.5x
B2B mags over $100 mm 9.5x -12.5x
B2B mags under $100 mm 7x – 9x
In 2008, tight credit, a debt backlog estimated at between $150B and $250B and a slower economy are expected to reduce multiples by one to two “clicks” (multiples of revenues).
Source: “Mergers & Acquisitions”, DeSilva + Phillips, 2008
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Spreads for EBITDA multiples are not the “deal”
10 3020 5040 60 70 80
Star Tribune6.5x
Dow Jones16.3x
aQuantive52x – 53x
DoubleClick52x – 53x
Yahoo (initial bid)23 x
American Lawyer Media8.5x
Facebook (partial)100x
Average Consumer12x - 13x
Average B2B11x
Source: Published reports; industry conversations; “Mergers & Acquisitions”, DeSilva + Phillips, 2008
Data reflect the estimated EBITDA multiples for deals made in 2007. Final terms vary, and Microsoft’s bid for Yahoo has changed several times since the initial offer.
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Alternatives to outright purchase
Strategic partnerships
Alliances in your product sales channels
Use of ad-supported networks to promote goods or services
Licensing enabling technologies
Passive investments (“a seat at the table”)
Negotiating a right of first refusal
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Bidding processes can become pretty involved…
Acquisitions phase Watch out for…
Preliminary due diligence
Confirmation bias (seeing what you expect to see)
Overconfidence (believing the deal is better than it its; look broadly to see how others have fared after acquiring comparable firms)
Underestimating cultural differences (use the initial investigation to gather a clear sense of the target company’s culture)
Bidding Winner’s curse (try to set realistic bid limits)
Final terms Anchoring (get fresh eyes before closing a deal)
Sunk cost fallacy (don’t get wedded to a particular deal; develop backup plans)
Source: “Deals Without Delusions”, Lovallo et al, Harvard Business Review, Dec 2007
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Key players in the media M&A market
DeSilva + Phillips (www.mediabankers.com)
AdMedia Partners (www.admediapartners.com)
Jordan, Edmiston Group (www.jegi.com)
Plus the media practices at some larger investment banks
Veronis Suhler Stevenson (www.vss.com)1
1Veronis Suhler Stevenson is now solely a private equity firm serving as a longer-term investor in media markets.
Working with a firm experienced in media M&A can provide access to as well as insight, perspective and support at critical points in the acquisitions process.
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For more information…
Brian O’Leary, PrincipalPrincipalMagellan Media Consulting Partners71 South Orange Avenue, Suite 4ESouth Orange, NJ 07079
www.magellanmediapartners.com