Digital Media Company Valuations are beginning to increase. As seen in the chart below, the average revenue multiple for consumer digital media companies is 3.5x Revenue. This revenue multiple is clearly below the lofty 5x to 10x revenue multiples of 2005 and 2006, but substantially higher than where multiples were at this point last year. Although valuations are increasing due to a better economic outlook and advertising environment, do not expect a super-charged M&A environment. Many transactions are going to involve strategic acquisitions with scale as well as small tuck-in acquisitions of current partner companies. As Hearst’s acquisition of iCrossing for $375 million shows, CEOs are making large strategic acquisitions that take them to a new place with minimal scalability risk (healthy, profitable and growing).
On the other hand, larger companies will also continue cherry-picking small tuck-in acquisitions that complement their existing audiences by adding functionality or niche content. For example, MSNBC acquired BreakingNews.com in January 2010, Time Inc, acquired personal shopping engine StyleFeeder in January 2010 and WebMediaBrands acquired social media site Rotorblog in March 2010.
The outlook for digital media M&A is more optimistic for 2010, but expect more selective deal-making. This year companies have cleaner balance sheets and a re-calibrated strategic focus, which means that acquisitions will have to make business sense. If the CEO cannot make a clear case for the strategic fit to her board, then she will be hesitant to take on the risk.
Tags: digital media, Economy, New Media
