Mergers & Acquisitions An Insider’s Guide to the Magazine Marketplace The DeSilva & Phillips...

Mergers & AcquisitionsAn Insider’s Guideto the Magazine MarketplaceThe DeSilva & PhillipsReport 2003

2

Mergers & Acquisitions The DeSilva & Phillips Report 2003

About DeSilva & Phillips

• Founded in 1996• Investment Bankers Exclusively Focused on Media• Over 111 Transactions Valued at $2.5 Billion• Media Sectors Served:

Magazines Trade Shows & Conferences

Medical Media InternetNewsletters Information BusinessesDirect Marketing Marketing ServicesTelevision Production NewspapersYellow Page Directories Books

3


Current Trends Shaping the Magazine Industry

• Advertising Sales are Down Sharply- Advertising determines the fate of the magazine

industry- Sales are down for the second year in a row

• Greater Pressure on Circulation- Decline of sweepstakes marketing; new regulatory

pressures on telemarketing- Newsstand has consolidated to four wholesalers

• Profit Margins have Eroded

• Public Companies Have Been De-Valued

• Highly-Leveraged Companies Are Scrambling- Vivendi Universal- AOL Time Warner- Primedia- Ziff-Davis- Penton Media

4


M&A Activity Reflects Market Conditions

• Transaction Volume is Down 17%- $3.9 billion vs. $4.7 billion in 2001- Down an eye-popping 84% from 2000 ($3.9 bil. vs. $25

bil.)

• Over-Leveraged Companies are Selling Properties

• EBITDA Multiples are Down 20%- Decline reflects advertising uncertainty, debt market- Bloom off the Internet rose, which pushed up valuations

in 1996-2000

• Dot-Com Bust has Destroyed Value in Two Ways- Industry lost thousands of ad pages- Lower growth prospects for a mature magazine industry

without dot- com possibilities pushed valuations back to historic levels

5


How Publishers Are Adapting

• Many are on the Sidelines, Not Actively Acquiring- Consumer: Primedia, Gruner + Jahr, Time Inc.- B2B: Penton, Primedia, VNU

• Closing Unprofitable Titles- Conde Nast: Mademoiselle- Gruner + Jahr USA: Rosie- Ziff Davis: Yahoo! Internet Life- Hearst/Miramax: Talk

• Cost-Cutting

6


Example: AOL Time Warner

• Huge Write-Down- $45 billion write-down (Jan. 29, 2003)

• Stock Price- $11.66 closing price (Jan. 31, 2003)- 85% decline since merger was announced in Jan. 2000

• Debt Load- Over $26 billion- 3x EBITDA

• Actions Being Taken- Selling non-core assets: 8.4% of Hughes Electronics

for $800 mil.; book publishing (Little, Brown; Warner Books); sports teams

- Cutting costs: Time Inc. to cut $100 million in 2003- Closing unprofitable titles: SI for Women, Mutual

Funds

7


Example: Primedia

• The Most Aggressive Buyer Became a Seller- Stock price has declined from mid-30s to $2.58 (Jan.

31, 2003)

• Transactions as a Buyer- Cowles Media, $200 mil. (1998)- American Trucker Group, $75 mil. (1998)- Adams Meetings/Power Groups, $40 mil. (2000)- About.com, $690 mil. (2000)- EMAP, $515 mil. (July 2001)

• Transactions as a Seller- Bacon’s, $90 mil. (Dec. 2001)- American Baby Group, $115 mil. (2002)- Modern Bride, $52 mil. (2002)- Chicago, $35 mil. (2002)- ExitInfo, $24 mil. (2002)- 6 smaller transactions (2002)

8


Top 20 Deals of 2002Property/Seller Buyer Price (000s)

1. Vivendi Universal Publishing/Vivendi Cinven, Carlyle, Apax $1,3402. Reiman Publications/Madison Dearborn Reader’s Digest 7603. Weider Publications American Media/Evercore 3504. Boron, LePore & Associates Cardinal Health 1935. Network Communications & Black’s Guide Gallarus/ABRY Partners 1506. F&W Publications/Citicorp Aurelian/Providence Equity 1507. Krause Publications Aurelian/Providence Equity 1208. American Baby/Primedia Meredith Corporation 1159. Modern Bride/Primedia Conde Nast 5210. Gardiner-Caldwell Thomson Corp. 4511. Key Media/TD Capital St. Joseph Corp. 4012. The Source Black Enterprise/Greenwich Street 4013. TriGenesis Comm./Quadrant Healthcomm MediMedia USA, Inc. 4014. Veranda Hearst Corp. 4015. Chicago/Primedia Tribune Co. 3516. HCPro Corp. The Riverside Company 3517. Hemmings Motor News ACBJ/Advance-Conde Nast 3218. Wiesner Publishing (80%) Dan Wiesner, et al. 3019. Dover Communications Boron, LePore & Associates 2420. Exit Info/Primedia Trader Publishing Company 24

Source: DeSilva & Phillips M&A Database; DeSilva & Phillips’ transactions are highlighted in red.

9


Other Factors That Influenced M&A in 2002

• Lenders Played Havoc by Tightening Credit- Banks tightened credit in response to bad loans- Two years ago: 5-6x EBITDA; Now: 3-3.5x EBITDA

• Emergence of Private Equity Targeting Media- Collapse of telecom and technology investments- Success of other PE firms with magazines (e.g.,

Petersen/Willis Stein, Ziff Davis/Forstmann Little)- Only a few 10 years ago; today over 140

10


The Economics of M&A

• Larger Enterprises Command Greater Value- 42% premium for companies that sell for $25-100

million vs. those under $25 million- 13% premium for companies that sell for over $100

million vs. those in the $25-100 million range

• Example:- Buyer acquires 2 companies for $25 million and 5 for

$10 million- Total purchase of $100 million- Aggregated Value = $137 million (10.26x EBITDA of

$13.32 mil.)

11


What’s Ahead for 2003

• Sluggish M&A Market is Slowly Improving- Will follow rebound of economy- Unless there is a war

• Credit Markets are Loosening

• Strategic Buyers are Cautiously Re-Emerging

• Private Equity will Remain Abundant

• Start-Ups are on the Drawing Boards Again- Time Inc. has 6: Snap, Cottage, Haven and others- Gruner + Jahr USA has 2: Flash, Wink- Hearst has 2 new ideas

• Multiples will Inch Upwards- As demand increases and growth rates improve- But, will not recover to levels of 1996-2000

451 Park Avenue South

New York, NY 10016

212.686.9700 Tel

212.686.2172 Fax

www.mediabankers.com

Mergers & Acquisitions An Insider’s Guide to the Magazine Marketplace The DeSilva & Phillips...

Documents

Transcript of Mergers & Acquisitions An Insider’s Guide to the Magazine Marketplace The DeSilva & Phillips...