How Much Will Media Companies Sell for in 2011? That Depends

Media deals got big headlines in 2010 but many transactions didn’t get big prices.

So maybe I’m still thinking about Newsweek’s sale earlier this year (the fabled magazine was sold for $1 to Sidney Harman and just recently merged with the Daily Beast). But media and marketing services may see a bump in 2011, according to a survey from AdMedia Partners, a New York IB.

In November, AdMedia questioned executives from content (traditional media and digital media) and services (marketing services, digital marketing and marketing technology). Private equity was also included in the survey, AdMedia said.

“There is a sense that valuations are creeping up,” says Seth Alpert, an AdMedia partner and managing director. “But it’s still a good time for buyers because valuations haven’t fully recovered.”

A majority, 58%, of execs surveyed expect that the economy will get better in 2011. Many also believe M&A activity will increase next year. In fact, 78% of content and 86% of services respondents think there will be more deals from strategic buyers, while 68% of services execs and 63% of content execs think PE will be more active.

Private equity has been a force in media and marketing services for years. In June, KRG Capital Partners recapped OLSON, a Minneapolis marketing agency. The Denver PE firm has also invested in Aspen Marketing. Polaris Ventures has invested in several digital media and entertainment companies, including JibJab Media and Internet Brands.

But there’s also been some major flameouts. Remember Modern Luxury? In 2007, Clarity Partners led an investor group to acquire the publisher of upscale retail magazines for about $250 million. Modern Luxury then defaulted on $120 million in debt, ousted its CEO and Clarity lost its investment. Modern Luxury was sold in the fall to the Dickey Family for $20 to $25 million.

Alpert predicts that pockets of media will get better in 2011. Companies that have figured out how to  manage print, online, tablets and their applications, plus TV and events will become attractive targets for PE firms, he says. And which company has done this? New York magazine has discovered that it doesn’t have to be just a print publication and can operate a successful media company with multiple components. “They’re making good profits,” Alpert says of New York magazine (New York Media, parent of New York magazine, also owns MenuPages.com and the Grub Street network of blogs. The Wasserstein family trust owns New York Media but the company is managed by Wasserstein & Co., the PE firm. ).

What sort of valuations can companies expect in 2011? In services, the median multiple that advertising agencies can expect to fetch is 5x EBITDA, while marketing technology firms can go for 7x. Analytics/optimization companies can seek 7x while mobile marketing can go for 8x, the survey said.  Content firms, like business-to-business media and consumer media, can expect valuations of 6x, while online media firms could see higher multiples of 7-8x, the study found. Exhibition/trade shows/conference companies will likely see the lowest multiples, 5x, the study said.

Alpert says the multiples cited by the study are “good generalizations” but that each deal can differ. “The specifics in each situation really do matter,” he says. “If you’re a fast growing company, you could go for a higher multiple. But [a] trade magazine that hasn’t figured the web out could go for a lower multiple if it goes at all.”

Lastly, there was much M&A at the end of 2010 but respondents were split if it’s the best time to sell. A slight majority, 51%, said companies should sell now while nearly as many said companies should wait. Nearly all, or 88%, of respondents think buyers should act now. “Companies that aren’t doing well should think twice,” says Alpert. “Unless they have positive reasons they shouldn’t sell. They should just improve their profit and loss statement.”

To read “M&A Prospects for Media, Marketing Services and Marketing Technology Firms,” go here.