After a couple years of slower transactional activity in publishing, we are starting to see a flurry of activity in 2021.
From smaller, targeted bolt-on transactions to transformational, billion-dollar plus acquisitions, merger and acquisitions (M&A) activity in the publishing space has accelerated significantly in just the last six months.
What’s the driver of this increased activity? How are media executives leveraging M&A in their overall growth strategies?
We want to address those two questions to suggest why transactional activity is accelerating and what the key themes are that we’re seeing as the drivers in both rumoured and actual M&A activity.
1. Continued low interest rates means more available funds to be invested
The first reason we consistently hear from media executives, as well as private equity operating in the space, is that there is simply lots of low-interest money that must be put to work. In the spring of 2021, Newscorp announced it was raising US$1 billion — approximately around the same time it announced the acquisition of Investor’s Business Daily for US$275 million — in addition to acquiring other publishing assets.
Before acquiring Dennis Publishing this month for approximately £300 million, Future PLC amended its debt facility to £600 million (from ~£260 million as of 31 March 2021). The continued availability to borrow at attractive rates has facilitated a hot market, even at strong valuations.
2. We’re catching up on the backlog after low levels of activity in 2020
The impact of COVID-19 in 2020 left many publishers scrambling, leaving little time for focus on strategic acquisitions. In a recent Media Leaders blog post, we noted that many publishers used 2020 to address fundamental business transformation issues such as:
- Fast-tracking the growth of digital subscriptions.
- Accelerating the shift to programmatic digital advertising.
- Igniting additional cost reduction measures in print- and advertising-related expenses.
While the business transformation for publishers is by no means complete, many in the industry are seeing strong revenue rebounds with the added flow-through of restructuring and cost-reduction measures in 2020. Now, publishers are returning to growth strategies and seeking out where best to attract new audiences, drive new revenue streams, and improve product and technological capability through M&A.
3. Digital-native media continues to be fragmented, and the battle for scale rages on
Over the last few years, “scale” has been one of the most common reasons cited as the strategic rationale. While scale was and continues to be a critical reason for acquisitions, the reasons for scale have evolved.
Historically, scale has been leveraged to attract more advertising revenue with bigger and more diverse reach, build more distribution capability both through owned and operated platforms and social or third-party platforms, and, of course, cost synergies. Although these reasons still exist today, publishers are now focused on issues like scaling first-party data and revenue diversification, particularly to consumer-led revenue.
We are still in the early stages of the aggregation of digital media, and “scale” will no doubt continue to be a clear focus for all publishers in the market for M&A.
4. Consumer revenue-driven publishers are winning the day
It is no secret that most news publishers have worked to pivot their business models toward consumer-centric revenues over the last few years. In recent transactions (as well as in some public company valuations), we’ve witnessed those who successfully pivoted to subscription-driven models achieve enormous success.
In the same week, competitors Politico and The Hill were sold to Axel Springer and Nexstar, respectively. According to SimilarWeb, Politico’s audience is 15% larger than that of The Hill, but the deal size was about eight times larger (US$1 billion for Politico versus US$130 million for The Hill). While that doesn’t factor in Politico Europe or Protocol, which were also included in the deal, it’s clear Politico garnered a much higher valuation than The Hill.
What drove the valuation differences? Although we don’t know the underlying revenue and profitability numbers, we do know Politico has invested heavily in driving subscriptions to more than 50% of its revenue mix, in addition to building a strong newsletter audience base.
This consumer-revenue focus has driven valuations not only in M&A, but also in how public companies are trading. The stock price of The New York Times has been directly correlated to the growth in digital subscribers over the last five years.
It’s one thing to say consumer revenues should be a focus as publishers continue to transform their business models. It’s another to see those transformations pay off in the form of the lofty valuations we are seeing for consumer-driven publisher business models.
What’s next for M&A in the publishing space?
While SPAC activity has slowed in recent months, the key factors that are driving M&A activity in the publishing space are likely to continue in 2021 and into 2022. Media leaders should be considering how M&A can factor into their overall strategy, whether it be audience and advertising scale, revenue diversification, cost synergies, or complementary product and technology.