M&A Activity Shows Publishers Looking to Diversify
Recent mergers and acquisitions activity in the magazine market suggests a move toward niche publishing and diversification of revenue sources, investment bankers tell Publishing Executive Inbox.
Much recent acquisition activity has centered around publishers looking to increase monetization opportunities on the Web, according to Tom O'Connor, managing director at Berkery Noyes.
"We have seen the business go from publishing to content to solutions," O'Connor says, by which he means an emphasis on software applications that merge with or overlay content, creating new opportunities for monetization and growth.
"There's a lot of excellent publishing companies out there...who say, 'Yes we like content, but we want to be delivery agnostic,'" he says. "They want to know what channels you are going to monetize, what your strategy is for the Web … how you are doing search, how you are doing SEO. [Buyers and sellers] are looking to monetize the content that publishers develop at every possible touch point."
While successful efforts at content monetization and lead generation make publishers more attractive to buyers, some recent M&A activity has centered on publishers looking to acquire the means to strengthen or diversify their own revenue streams, as Meredith Corp. has done since its 2007 purchase of social media marketing firm New Media Strategies. This week, several media outlets have reported that Hearst Corp. is close to purchasing Scottsdale, Ariz.-based digital marketing agency iCrossing for $375 million, an acquisition that could bring the publisher enhanced expertise in Web analysis and marketing tools.
Recent deals, including Adobe Systems Inc. buying Web analytics firm Omniture and content delivery network provider Limelight Networks buying digital ad service provider EyeWonder, illustrate this trend toward moving revenue capabilities beyond traditional boundaries, DeSilva + Phillips' Jay C. MacDonald says in a company news release. "There will be a lot of obvious categories like the ad network space where the activity will be brisk but what’s most interesting will be to see who the buyers are, because I submit that the definition of what is a media company … is changing quickly."
"The goal is to find some way to grow the top line," O'Connor says. "All [publishers] are looking for how to transition their business from publishing to information, and to deliver information however the customer wants it to be delivered."
The other side of the current M&A coin is, of course, divestiture. "Some of these are classic print businesses being sold to various parties for very good prices on the sell side," O'Connor says, citing the recent sell-off of properties by Reed Business Information.
What Ed Fitzelle, managing director of Whitestone Commnications Inc., calls "prepackaged bankruptcies" are another manifestation of this trend. In the case of media companies such as Penton, Questex and Cygnus, "Equity sponsors have lost money, but gotten out from under mountains of debt," he says. "The new ownership includes former lenders, whose hope is to recoup some of their losses in the future. Whether they are successful will depend on timing and the speed of the overall recovery."
Both O'Connor and Fitzelle find clues to the industry's future in the type of businesses doing the buying.
"Reed and Nielson have unloaded numerous properties, that were once industry darlings, to entrepreneurs," Fitzelle says. "The willingness of these entrepreneurs to commit to the markets served by these publications is a very healthy development. Publishing, at its heart, is a mom-and-pop enterprise (think of the original Reader's Digest or any of the great newspaper families, or any of the major book publishers in their early stages) and focused, tightly run businesses, which will grow by recognizing opportunities and taking limited risks, is the wave of the future and a healthy development."
O'Connor seems to agree. "We do think people who buy these kind of assets, who really know these industries, can do a lot more with them because they are very hands-on," he says. "They can do better than a larger entity sometimes that is very diverse."
So does this mean publishing—or b-to-b publishing, anyway—is generally moving in the direction of niche specialization?
"Absolutely," O'Connor says. "We think it will end up being a lot of regional or mid-market firms privately owned or backed by some private equity money. Not huge conglomerates."