Through the epochal shift in media over the past decade, the uncertainty around the behavior of marketers and end-users created a lot of volatility in company valuations.
Today there is more predictability in how current behavior patterns are likely to influence business results.
At the opening of the DeSilva+Phillips Dealmakers Summit earlier this month, I shared some of the consequences of this predictability:
- Everything that go can digital will go digital.
- Undifferentiated information and advertising inventory will continue to expand and decline in value.
- Data and analytics integrated in every aspect of the media and information supply chain will increase value.
As consensus has developed around these trends, and business models have been demonstrated that can be projected into the long-term, there has been an intriguing impact on company values.
In an analysis of more than 70 representative transactions over the past two years, a distinct pattern emerges. Generally, digital media and traditional media transaction multiples have been at a discount to public trading multiples. This discount reflects an acknowledgement of the relative maturity of the traditional advertising-supported media business model. Acquisitions in the media space are generally additive rather than transformative.
In the marketing services, advertising agency and information sectors, however, transaction multiples have been higher than public trading multiples. This is also true in the merging ed-tech category.
This delta reflects the conviction on the part of strategic acquirers that fulfilling these strategic mandates will have a transformative effect on their value.
I’m encouraged by the trend. Not because of the high multiples, but because it creates the kind of deal climate that levels expectations between buyers and sellers, giving companies the opportunity to use their balance sheets to drive growth that can energize their workers, benefit their customers and reward their shareholders.
You can see all the slides from the presentation here: http://www.slideshare.net/danielrmccarthy/key-trends-driving-the-2013-deal-outlook-for-the-media-information-industries. I’ll be issuing a white paper in the next month on the topic.