Mitch Rouda moderated a panel of financiers and media companies who laid out the case for digital operations supporting company valuations. Prime concern pointed out by Peggy Koenig, Managing Partner of Abry Partners: without them barriers to entry in a given segment are low. Tad Smith, CEO of Reed Business, is generally trimming his portfolio but keeps an eye on online-only plays and swapping titles - but he's not looking at print. "Print is in a gentle state of decline," Tad notes, so it's up to the other assets to make the case for a sale. Jay MacDonald, Managing Partner for DeSilva and Phillips, focuses mostly on online deals, but looks for companies plugged into the right environment. Jay notes that there's a perception that online companies have higher multiples, but multiples are well spread, 7-16x EBIDTA. In online businesses EBITDA ratios may be actually lower, though revenues may be higher. Charles Engros, Partner for Morgan, Lewis & Bockius has been focusing on the consumer space recently with deals for NYT, Pearson and eBay/StubHub, buy in general large media companies are always looking for strategic fits for cash flow. Charles outlined an engineering-related acquisition with online tools for specific engineering problems as well as auction vehicles and had created a virtual market in the engineering community that offered great growth opportunities.

RE models that add to valuations: the future is in ecommerce, lead generation and community enhancement, according to Charles. Peggy notes the value of proprietary digital products as another valuation driver, as with platforms in enthusiasts in coin collecting to put their collections online and create a specialized trading systems. Tad looks at growth, predictability, cyclicality, seasonality and defensibility to make sure that revenue characteristics match overall revenue and earnings expectations. Jay looks at profitability, growth, size, revenue, diversity by industries and products, share of market and online profile or plan.

Mitch: How hard is it to move revenue online? If there's a locked connection with an audience why does it matter where they are? Tad: was a little harder in earlier Web days when the certainty of being able to generate revenues online and consistent usage was lower. Peggy: perception is reality, print advertising is not growing, audiences have migrated online, need to build revenues there, lots of blocking an tackling. Robustness is determined by revenue, not earnings. Mitch: well, why not park all of my revenues online and merchandise print? Peggy: Cygnus has a growing online business but a much smaller percentage of online revenues. Jay: Internet provides an opportunity for a much broader audience, 90 percent of online readers were not readers of magazine in OS data. The Web provides a measurable new audience that can be monetized. Jay: you can do so much more online with tools that can help you get people to pay for things.

Mitch: How important is registration for online revenues? Charles: very important. Peggy: need to make sure that people are qualified registrants. Mitch: we're faced with a choice, do we go for high numbers or qualified numbers? Peggy: depends on who you're trying to reach. Tad: progressive registration can work, trade "goodies" for more information.

Question: you look for strong management teams, how important is it to keep a team for new owners? Tad: not sure that it's terribly important to have synergies on basic staffing functions, but on management it's important to have retention elements if you don't have internal managers that will be credible to new staff. Charles: sellers look as carefully as buyers.

Question: lower margins online, if the goose that lays the golden eggs is dying, will online margins make for a good investment? Tad: lots of costs go out when you move online.

Question: Share of market, how to you determine it for an online portion of a company? Jay: look at company as a whole, not just online component. If you have zero online now, it may be very difficult to be sold at all now. Prism/Penton deal - Penton worked hard to come back with their online strategy, have a trajectory online that helped with their exit.

Question: Optimal balance between events, online and print? Peggy: would want to have online revenues at least 15-20 percent. Tad: where a company invests says a lot, what does it says when a company decides to move to other media? It may have implications about what they expect from online margins.

Bottom line: don't expect to sell if you were not trying to work hard to get ready for digital media. The train has left the station.

Labels: ABM, Digital Velocity, events, mergers and acquisitions