Despite Challenging Times, M&A Opportunities About
It should come as no surprise that companies in the media and marketing services business are still changing hands at a brisk pace. The credit crunch and market meltdown may be stalling mergers and acquisitions in other industries, but there appears to be little or no letup in this one.
The simple reason for the strong pace of M&A is that, sometime in the past 18 months or so, Madison Avenue, along with their clients woke up to the fact that digital marketing and the technology that supports it are not only here to stay, but are smart business.
This has led to a realization by many of the biggest names in the business, that they do not yet have the appropriate capabilities within their portfolio. Hence the robust M&A market that continues to thrive, in spite of tighter lending and a slowing economy.
Small to middle-market strength
Keep in mind that, despite the blaring headlines, the credit crunch is primarily affecting the upper end of the scale.
It’s more difficult these days, though certainly not impossible, to finance acquisitions valued at more than $500 million.But in the realm of the middle-market—target companies valued in the $100 million to $500 million range (and small-cap, below $100 million in value)—deals are getting done, with credit available at only slightly less favorable terms than what was available prior to mid-2007.
There are two main factors for this continued robust M&A environment:
First, strategic buyers with strong balance sheets have a healthy appetite for acquisitions, which they can generally fund with their abundant cash on hand.
Second, private equity firms are showing an increasing willingness to do deals with actual equity, reducing the amount of leverage they deploy.
Value Drivers
In both instances, the focus has been on three types of targets:
- companies which provide enabling technology and software-based tools;
- advertising media/networks; and
- interactive agencies/marketing service providers
Acquisitions which garner premium valuations tend to share certain characteristics, including:
- Leading market position or unique competitive positions
- Synergy opportunities
- Scalability
- Robust revenue growth
- Consistency of trending
- Recurring revenue model
- Strong management
These features were present in many of the recent deals, including: Adconion, the independent online advertising network’s acquisition of Frontline Direct, a leading data management and direct marketing solutions provider for $20 million. The goal here being to enable advertising agencies and marketers to reach the same consumer across platforms.
Microsoft’s acquisition of Rapt, further demonstrates their commitment to providing advertising solutions for digital media publishers.
Specific Media, an online ad network agreed to acquire Adviva, a display advertising network in the United Kingdom. The combined company gives brand advertisers an opportunity to combine massive reach with every method of targeting.
How long this market sector will continue to enjoy a degree of insulation from the downturn is anybody’s guess. What seems clear is that, for the time being, there is no dearth of buyers for attractive assets.