The latest mediafutures 2019/20 survey shows that M&A is now seen as a valid route to growth for many more publishers, large and small, than in the past.
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 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 two years – a big increase. This figure is higher among B2B operations (54%) than in Consumer (40%). Overall, 43% are looking to buy, 5% to merge, with only 2% thinking about selling.
Yet there is another group, Organic Growers, accounting for just over 50% of the mediafutures participants, who have 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 mediafutures 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 obvious reason given is that the due diligence was simply not thorough enough and skeletons started to fall out of cupboards pretty quickly. Yet the main reason stated 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 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”. 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
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 simple scale or to buy in expertise to fill in their competency gaps (e.g. 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 does it all mean?
What is clear from this year’s mediafutures survey is that the general pace of change is expected to accelerate constantly over the coming 12 months, with M&A changing the landscape in rapid and unexpected ways. Yet 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 seeing 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.
CDS Global is a strategic partner supporting the mediafutures project. Click here for more details of their services.
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