M&A taking centre stage

When analysing the latest Media Futures results, one thing that stood out was a big increase in M&A activity. Jim Bilton looks at the whys and wherefores.

By Jim Bilton

M&A taking centre stage

Media Futures is an annual benchmarking project, now in its tenth year, undertaken by Wessenden Marketing in partnership with InPublishing.

With a record 112 media companies taking part in the latest 2019 survey, it has become the definitive measure of the shape and direction of the media business… What are the trends, challenges and opportunities in all the key revenue streams? What are profits and productivity looking like? How is change being managed within the organisation? And how is the tech challenge being handled?

The project generates a mass of granular data from across a wide range of companies: Consumer Magazines, B2B, News Media and Customer Publishing. They range in size from the major industry players through to smaller, independent companies. Some are traditional “publishers”, while others are digital pure plays. Yet all are trying to manage disruptive change. Also, every company, however young, has a “legacy” of some description – boundaries, limitations and barriers which need to be blasted away to grow and prosper.

The growth of M&A

A key change from previous years is the growing importance of merger and acquisition (M&A) activity. Whereas, M&A used to be thought of as the domain of mega, international media conglomerates, it is now being seen by many smaller companies as a valid route to growth. This year’s feedback from the survey is that just under 50% of the benchmarking media companies are looking at some kind of M&A activity over the coming twelve months – a big increase. This figure is higher among B2B operations (55%) than in Consumer (40%). Overall, 43% are looking to buy, 5% to merge, with only 1% thinking about selling.

Yet there is another group, Organic Growers, accounting for just over 50% of the Media Futures participants, who have clearly rejected the whole M&A route, usually for one of two key reasons. Firstly, they simply do not have the resources, either in terms of cash or manpower. Secondly, they have a more fundamental belief that the better option is organic growth. While they recognise that this may be a slower path to take, they feel that it is more stable and sustainable in the longer-term: they tend to be family-run or owner / operator companies.

The dangers of M&A

30% of the Media Futures participants have recently been involved in some kind of M&A activity. While the vast majority feel very positive about the experience, giving scores of between 8 and 10 (out of 10) for the level of success, there are also some disaster stories where things went badly wrong. One reason is that the due diligence was simply not thorough enough and skeletons started to fall out of cupboards pretty quickly. Yet the main reason given was a mismatch of cultures: “It always takes longer to embed and integrate acquisitions than you think – cultural issues are always the most crucial to get right. We need to focus much harder on this aspect in the future.”

The current round of M&A activity is drawing four types of player out of the woodwork.

The key M&A players

The current round of M&A activity is drawing four types of player out of the woodwork. Firstly, trade buyers, as media companies try to build scale and fill competency gaps. Secondly, finance players (mainly private equity), who see the opportunity to strip out costs or reshape the business to make it more saleable within a fairly tight “exit window” timeframe. Thirdly, big tech companies who are looking for content to drive through their distribution pipelines. Fourthly, there is a growing group of wealthy individuals, particularly in the USA, who find the whole business of media attractive for both financial and ego reasons – we are witnessing the rebirth of the old-fashioned “media mogul”, but with a new digital overlay.

The reasons for trade M&A deals

What is clear is that there are three broad types of trade M&A activity taking place in the media business at the moment.

  • Consolidation as companies try to build scale or buy in expertise to fill in their competency gaps (eg. video studios, data analysis companies, live events companies).
  • Demerging as sprawling empires are trimmed down and reshaped into more focused, vertical units – narrow, but deep. This is intended to make them more efficient and agile operationally, but also means that they are easier to sell off or to partner in collaborative joint ventures.
  • Tactical buys and swaps, with the streamlining of ungainly portfolios and “long tails”.

What is clear from this year’s Media Futures survey is that the pace of change is expected to accelerate constantly over the coming twelve months, with M&A changing the landscape. The industry seems split down the middle as to whether to be part of this wave of buying and selling activity or to step back and go down the organic growth route.

Over the coming months, we shall be digging into more detail from the benchmarking data to see if one group is actually faring better than the other. We shall also be looking at what the underlying business models look like, where the perceived opportunities and challenges lie and where the money is really coming from in publishing today.

This article was first published in InPublishing magazine. If you would like to be added to the free mailing list, please register here.