Dealmaking in the time of Corona
Certainty tends to be the touchpaper for M&A activity, writes BDO’s Damian Ryan – so how has Covid-19 impacted the media, tech and advertising markets?
When you’ve been through a couple of recessions it’s only natural to keep a watchful eye on the markets and try to identify trends, behaviours and suchlike. However there’s no manual out there for Covid-19. This is more of a natural disaster than a recession and with it comes new realities and new ways to react and respond to help clients during this challenging and heartbreakingly sad time.
Nobody has the answer to the overall impact of this crisis. Like many others I’m capable of chucking out numbers and stats but for the moment I’d prefer to gently feature some high level feedback from immersive client sessions over the last couple of weeks:
Media
An amazing uptick in consumer trust and attention for broadcast media against a paradoxical slump in ad revenue. (Channel 4 expecting 50% reduction in adspend). Social media to shine in the messaging space but face relegation for news content.
The race in the OTT market continues as streaming service Tubi was sold to Fox Corp for $440m in mid-March as Fox play catch up with Netflix, Disney and others competing in this space.
We’re expecting to see more deal activity focused on the “in home entertainment” space but whether this will be matched by adspend is, at best, unlikely in the short term.
Brands
Impact on adspend is still relatively unclear. IAB reports that almost a quarter of brands have stalled all advertising and almost half of all brands are in an adjustment mode.
Digital adspend is down by 33% against traditional media being down 39%. However, mission based marketing and cause related marketing are both up over 40%. Some brands feel it’s vital how they are remembered post Covid-19.
Agencies
Very few will remain unchanged. We’re expecting to see significant diversification as agencies seek to remain busy with clients by providing non-core or relatively new services such as data science, user experience and CRM.
We’re also seeing areas of uplift where clients will outsource varied work to agencies rather than hire.
Specialist agencies are continuing to close out deals Huntsworth PLC (a healthcare comms and PR agency) was acquired by Clayton, Dubilier & Rice for £559m with an EBITDA multiple of 7.28 and a Revenue multiple of 1.5.
Fishawack Health (a healthcare comms agency) was sold by LDC to Bridgepoint for an undisclosed fee.
Meanwhile, Sir Martin Sorrell’s S4 Capital remains active and focused on pure play digital.
Martech
Some uptick for the larger, more trusted vendors supporting increased client investment in digital transformation.
Smaller vendors facing a commercially difficult time in comparison to the last two years followed by continued consolidation in the space.
From a dealmaking perspective I feel we’ve reached the end of the initial and reality biting phase. Although every deal and every client is unique, transactions will now be characterised into one of three boxes;
postpone,
prepare,
or proceed.
Unless there’s an unmoveable reason to sell the business – we’re more likely to agree with clients to revisit the deal within a few months of the end of this crisis. Whatever provides adequate time to take stock of a post Covid-19 landscape and re-plan accordingly. This accounts for approximately 30% of our team’s current deals.
Another third of deals are firmly in a preparation phase. They’ll aim to be about 95% ready to go to market and wait until we have clear line of sight on the market and that sense of readiness is matched by Private Equity and Trade investors. Some clients will use this downturn to prepare and think about a transaction. Why not? How often do we get the time to do this?
Where we’re proceeding with clients it’s because the transaction is at a sufficiently advanced status and all parties can subscribe to a finishing line within two months.
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Dealmaking aside there’s plenty of other ways to help clients right now – providing expert input into contingency planning, navigating through CBILS, conducting funding health checks or just spending time listening to the many varied accounts of the impact this new visitor has wreaked upon their worlds and seeing where we can help.
Rolling the clock forward I expect the period from early June to be as challenging as anything I have faced in my many years in corporate finance. Certainty tends to be the touchpaper for M&A.
While helping out businesses facing challenges, we’re also busy examining the sub-sectors of the media ecosystem experiencing less impact than others. No rocket science here just lots of conversations and listening to buyers and investors:
Edtech and online learning surely has an elevated role at a time like this? We’ve seen BBC get on board in a significant way this week. Media assets and IP remain of interest and of course we can all see the cultural shift around in home entertainment in the last month too. All that time not spent commuting has to get consumed somewhere!
And after all this is over… it might be an exciting time for media. Will we have a new tribe of musicians, artists, storytellers? Don’t forget about all the code writing, technical design and creativity that may well prosper in a time like Corona.
Damian Ryan is a partner at BDO where he heads the media and tech M&A team. He is also the author of Understanding Digital Marketing.