Never has the pace of change in the media sector been so fundamental or far reaching. Across the spectrum of media companies, from print publishers to marketing and advertising agencies the shift to digital platforms and the need to maximize online revenues is prompting radical changes in their business models and growth strategies, along with exiting and selling the business.
Given this context it is no surprise therefore that the sector is now one of the hottest in the market.
Indeed the strong demand for media companies is in stark contrast to the sector’s profile only a few years ago when the economic downturn was hitting advertising and subscription revenues hard and media companies were, if not totally shunned by investors, certainly nowhere near the top of their buy lists.
The level of UK deals started to recover in 2010 and the trend is now very much upwards as more and more buyers and investors seek to capitalise on what they see as potentially significant increases in earnings as media companies become more adept and astute at maximizing digital revenues from a broad variety of channels.
There has been a clear shift in buyer interest from a focus on ‘old’ media (businesses such as newspapers, with higher exposure to advertising spend and where some titles are finding mapping out a clear digital strategy a challenge) to broader information suppliers and data providers firmly anchored online.
The £8 million sale of The Profile Group, owner of Fashion Monitor, Entertainment News and other well-known brands, on a high 8x EBITDA multiple, which we completed last month, illustrates the strong demand for digital information businesses.
To maximize the value of a media business on sale requires clear thinking. Planning for exit from the day you have decided to sell can help ensure that your business achieves premium multiples. It’s also important to have a clear digital strategy.
Taking the time to discover new distribution channels and create new online services to broaden your revenue and customer bases can result in a significant enhancement in the perceived value of your business.
Having implemented a digital strategy it’s vital that digital revenues are clearly set out and recognized as such in your financial reports and in the Information Memorandum (IM). This will signpost them to potential buyers and help to ensure that the business attracts the larger multiples digital media businesses command today.
Advisors, whether lawyers, accountants or corporate financiers, who understand your particular sub-sector or niche in the market are also critical to getting best value. Trade marking proprietary technology or brands such as magazine titles core to the business and keeping them updated is also key, as is making the most of the relationships a business may have with leading international brands, such as advertisers, licensors, and clients, as they add prestige and credibility to the company. Another focus point in the IM would be financial forecasts – missing these targets undermines buyer confidence and potentially the price.
Despite the still difficult economic backdrop there are a number of factors that suggest now is still a good time to sell a business, apart from the sector-specific trends that currently make media companies so popular.
There has been some improvement in sentiment, even if the actual economic statistics have yet to catch up, and many UK companies having cut costs aggressively are cash rich and looking for acquisitions.
For private company vendors the current tax incentives such as Entrepreneurs Relief providing a 10% tax rate on the first £10million capital gain is another reason to consider selling your business now.
So whereas a few years ago, the relative interest was weighted towards financial buyers, such as private equity houses, we are now seeing a significant increase in trade buyers, looking to spend their cash on acquisitions in addition to the private equity market remaining buoyant. Inevitably, this more competitive environment translates into more demand and better exit prices.
Overseas buyers, many from emerging markets, are also increasingly taking a keen interest in UK companies, partly out of a desire to diversify into a developed, established economy but also to capitalise on sterling’s weakness – which won’t last forever.
Often overseas firms will pay higher multiples, as they are prepared to pay a premium to secure a base in a relatively stable economy – which given our debt woes may seem an odd description for the UK but compared to many other European countries it is perfectly apt.