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.