Dinner or Diner? The biggest question of 2021

The type of ownership of a company has some fairly obvious impacts on how it is run. The perspective of a family-owned or an owner-operator business is very different from that of a big corporate or a PE-owned company; as is private ownership versus publicly quoted status. These different ownership types drive very different approaches to issues such as investment, cost reduction, RoI periods, staff churn, salary levels and a whole range of other factors. Ownership is also one of the key variables that feed through into the productivity level figures covered in an earlier article. The focus of a publicly quoted publisher will tend to be more on the short term, the bottom line and cold efficiency. By contrast, a smaller privately-owned operation may be more concerned about long-term staff retention, investment in upskilling existing staff rather than bringing in younger and cheaper “fresh blood”, and have a more paternalistic take on the whole work-life balance issue. This all feeds through into productivity ratios.

M&A used to be thought of as the domain of the larger companies, but is now seen by many smaller operations as a realistic route to revenue growth and to building the broader capabilities of the business.

Recent M&A activity has been much greater than a year ago, but future intentions to buy or sell have dropped. After the initial pandemic-driven frenzy of deals, the industry quietened down in Q4 2020. Yet inter-company discussions and more strategic thinking are both clearly taking place in a market where anything could happen over the next few months in 2021. And partnering and coop projects sit beside more traditional buy & sell M&A activity.

The whole market is a mix of strategic deals and opportunistic bolt-ons.

M&A Dinner or Diner

A number of companies are both potential buyers and sellers at the same time. And the whole market is a mix of strategic deals and opportunistic bolt-ons. The result is a very jerky, stop-start M&A market.

“We are out talking to people about buying properties and consolidating in our verticals. Yet these conversations can so easily flip the other way and we end up talking about selling. And if someone came along and offered a big sum for our whole operation, then we’d have to consider it. We’re both dinner and diner at the moment,” said one respondent from a specialist B2B company.

A growing 40% of companies have been active in recent M&A activity. That is significantly up on last year’s 30%. Yet the Success Score for those acquisitions (1 to 10 depending on how successful they had been) dropped significantly from 8.4 in 2019 to 2020’s 6.4. There have been some disasters, due usually to poor due diligence or cultural mismatches. Yet M&A has percolated down from larger companies to SMEs and is now a realistic option for everyone.

But future M&A intentions are cooling: currently, fewer companies are planning to get involved in M&A (43%), down on last year’s 50%. Yet that conceals some big variations by sector with Events and Customer being the most likely (both 67%), whilst B2B is the least likely (34%) and Consumer is in the middle (49%). Partnering is often the first step to an acquisition.

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 why:

• Consolidation, as companies try to build simple scale or to close down the competition.
• Extending into new markets: both in terms of geography and market sector, although these tend to be overlapping / parallel / complementary to the current operation rather than massive lateral leaps.
• Targeted gap-filling: creating an operational base in a new area of activity and obtaining expertise / skills / tech capability (eg. video studios, data analysis companies, live events companies, ecommerce operations).
• Opportunistic buys & swaps: tactical streamlining of “long tails”.
• Refocusing & 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.
• Arm’s length: financial investment in its own right in a completely new area, which may never be integrated into core business.

Yet there is a group, Organic Growers, accounting for just over 57% 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.

So, while there is clearly pent-up demand for M&A activity in 2021, this is manifesting itself in bigger, sector-shaping activity, rather than the stream of smaller deals that characterised 2020. What is clear is that M&A will continue to change the media landscape in rapid and unexpected ways.

About mediafutures international: mediafutures is an annual benchmarking survey of the industry undertaken by Wessenden Marketing in partnership with InPublishing. In 2020, mediafutures went international with Colin Morrison’s Flashes & Flames and Access Intelligence in the USA as two new partners.