M&A Activity to Escalate in 2010

Based on signs of recovery in the economy, leaders at marketing services and media companies expect merger and acquisition activity to pick up significantly in 2010, according to an annual survey of the M&A landscape from AdMedia Partners. Of course, after a dreadful year like 2009, the hurdle for improvement is quite low.Survey respondents expect the growth will come predominantly from strategic buyers that largely sat on the sidelines last year, according to Seth Alpert, a managing director at AdMedia, a boutique M&A firm in New York. "The strategic buyers were out of it for basically the whole year last year," Alpert said. "The lending environment was constrained. Even private equity [activity] was slow."Eighty-three percent of the marketing services executives polled and 80 percent of the media executives predicted that strategic deal making would rise this year -- a major swing from AdMedia's last survey when less than a third of the executives in each camp projected an uptick. The expectations for financial buyers were lower, with roughly half of the respondents in each sector anticipating higher levels of activity.Collectively, execs from the two sectors agree that it's a seller's market, given that both financial and strategic buyers are showing signs of interest, particularly in shops that specialize in social media efforts and mobile marketing. A whopping 92 percent of the group believes that buyers should "act now," up significantly from the 64 percent who felt similarly in the previous year's survey and the highest percentage in the 16 years that AdMedia has conducted the poll.Conversely, 68 percent of the respondents indicated that sellers should wait, although that figure represented a decline from 73 percent the year before.Beyond renewed interest among buyers, the factors making 2010 more deal-friendly include relatively reasonable valuation multiples, client demand for new services and the expectation that the Bush era federal capital gains tax of 15 percent that expires this year will likely rise, according to Alpert.Survey respondents expect the valuation multiples for marketing services firms to slide up or hold steady, but painted a bleaker picture for media companies looking to sell. When asked to assign a "reasonable" multiple of earnings before interest and taxes to six types of media companies, media sector respondents indicated that five would experience declines and newspapers would stay the same (at three times EBIT). The other media types were online media (down to eight-nine times EBIT from nine-10 times); information/database publishing (down to seven times EBIT from eight-nine times); consumer magazines (four-five times EBIT from five-six times); business-to-business publications (four-five times EBIT from six times); and exhibitions/trade shows/conferences (four times EBIT from five times). Alpert attributed the dour outlook to continued uncertainty about the future of media in the digital age.It's early yet but in the first two months of 2010, AdMedia has felt a tangible warming in the M&A arena, Alpert said. And that activity represents a continuation of a trend that began in the fourth quarter of 2009, when the firm closed five of its seven deals for the year. The 2010 total was down 50 percent from 2008 (14 deals) and down 66 percent from 2007 (21)."A lot of sellers who waited it out last year are ready to go," said Alpert. "Things feel good. There's a lot of activity." He added: "It's really going to be an up year. How much up? I wish I knew, but I don't."AdMedia conducted its latest survey online in December by reaching out to some 7,400 chief executive officers and owners of media and marketing services companies as well as private equity firms with investments in both sectors.

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M&A Activity to Escalate in 2010

Andrew McMains

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Andrew McMains