Tollman Geffs of
JEGI lead a panel talking about recent B2B media M&A activity, including VNU's acquisition, the Knight Ridder selloff in the wake of sinking revenues and Scripps-Howard newspaper chain that bet heavily on cable and now is going deep into comparison shopping, via acquisitions such as
Shopzilla. Ziff Davis is being sold off in pieces, but United Business Media, parent of PR Newswire, Commonwealth and CMP, have been on the march with major acquisitions to build up their portfolio. Disruptions are a key factor in this market, with Google's huge growth in market value leading the way - it sets new benchmarks for performance [COMMENT: that may not be realistic benchmarks for other media companies, unfortunately.]
Carter Bales, Co-Founder & Managing Partner of the Wicks Group, is a well-versed industry hand who looks carefully at smaller assets that may have been ignored in the mix and could do better with appropriate nurturing. In the 90's boom and the current market Wicks continues to do reasonably well but large companies were disappointing investments. "What's the value of a conglomerate format," Carter notes, seeing that scale is not necessarily providing performance rewards. Producing economic value needs a balance of top-quality management with a reasonable number of assets under their control to leverage the best of those talents, Carter notes. Carter went from "descaling dinosaurs" to focusing on the mid-market, believing that the economy will reward performance more than scale.
Jim Friedlich, Co-Founder & Partner of Zelnick media, takes private capital and helps to place it for them. They look at the underperformers in large portfolios and try to transform them through cost-cutting and more creative approaches. Lillian Vernon expanded their online revenues aggressively under their tutelage. Jim believes that we're in a "Gulliver era" in which major players have woken up and start eating up small companies aggressively.
Carter looks at giants and recognizes that there are no monopolies any more. The Murdochs of the world who act more as a one-man show who uses News Corp as a holding company for aggressive investment may do well, but traditional large publishers will have problems. Jim sees that giants like Time are not likely to be broken up, you're not going to be the last of them. Carter sees more substitute products also weigh in against giants, in spite of Ann Moore's belief that depth trumps breadth [COMMENT: but now depth can be built more efficiently through new aggregation methods]. A third or more of their deals are large companies shedding assets, in large part because their holdings have become too broad to manage effectively. But this brings new capital into the industry, which will help to build companies worth selling when it comes time to exit. [COMMENT: The Wicks approach is a healthy one, it allows one to build defensible, profitable holdings that can move more quickly against born-on-the Web initiatives that can come up from the grass roots to take market share. Same exposures as larger plays, but more ability to respond - in theory. In fact, they may be just honing traditional models more effectively.
David Warlock, Outsell (Ah, this is who has the courage from Outsell to ask a question. Sorry, Lord, couldn't resist.). NYC versus London, in London many believe that there are only going to be two or so players and a little bit on the edges. Carter: a large number of small and mid-sized innovative companies will do well. Advantages of scale are not there in many cases. Carter says to expect to see a flourishing of small to mid-scale companies in U.S. and elsewhere. Jim agrees, "You're seeing the same trends [in London] as we are, only five hours sooner." Question from Adele: how does this all affect exit strategies? Sell them to larger companies, seems to be the answer, or wait for an IPO. [COMMENT: Hmmm. Problems? We need to look at long-term profitability more carefully this year]. Selling both cash base and infrastructure, management teams, etc. is key. Large deals of late have sometimes been to buyers out of the industry lately, perhaps taking advantage of their lack of industry knowledge. Momentum investors such as hedge funds who think that they can do recaps quickly are also closing in, but "If you take out the froth effect in the IPO market, the returns have been mediocre," Carter notes. Jim notes that money is cheap, and that "some of this will end badly, creating opportunities for distressed equity plays.
Good discussion. I agree with Carter that the action is in keeping small to medium companies "right-sized" and profitable with minimal corporate overhead, making private equity the winner these days.
