MONEY & MEDIA CONFERENCE
Money & Media CONFERENCE
4 May 2007, Claridges Hotel, London
Report by Neil Higginson, Vice-chair, Bristol Media Group
1.0 Context
In the world of media communication, content is now the key driver of success. As consumers discover that they can access, edit and create the content that they choose, the power of the media owners to dictate consumer choice has waned. This year's Media & Money conference examined the impact of the content revolution on the media sector including gauging future trends that are shaping the industry as well as providing keen insights on how to expand, buy, sell and enhance the value of media businesses.
The panel of speakers included industry representatives who are at the forefront of the media industry:
§ Iain Daly, Associate Director, Bridgewell Group: The City View: The developing criteria for valuing media stock
Charlie Hoult, CEO Loewy: Size isn't everything, but it helps: Building Loewy fast with the right mergers
§ Chris Satterthwaite, CEO Chime: The changing role of brands in the Media sector
§ John Schmidt, CEO ContentFilm: The future for content distribution
§ Alex Connock, CEO Ten Alps: New Model Indies: Using the internet to become media owners
2.0 Patrick McKenna – Chairman of Ingenious Media
A media Investor’s viewpoint
Patrick was Chairman and Chief Executive of the Really Useful Group from 1990 to 1997 and prior to that a Partner at Deloitte and Touché, heading their Media and Entertainment Group from 1986 to 1990. He has a number of non-executive roles in other media and entertainment companies.
Patrick’s thoughts and views?
§ Patrick operates at the VC/Entrepreneurial end of the finance scale, rather than Equity
§ He has a strong focus on partnering and can bring strength in operational management skills and access to funding
§ Poor business plans remain a weakness in the media sector with many having big gaps which ultimately puts off potential investors
§ Patrick seeks to help businesses based on his own intuition and instinct [backed by logic] and he likes to support people and their ideas
§ The 3 C’s – Capital, Customers, Catalogue
The climate for investment?
§ Currently exciting; but also confused as new business models emerge
§ As for the macro environment, this remains good with the internet providing a good advertising medium
§ Whilst the domestic media sector is crowded it continues to grow and currently accounts for 6.7% of the UK’s GDP
§ The UK is seen as a digital pioneer i.e. we have more broadband access than anyone else in Europe
Patrick’s views on investing in media businesses and investors
§ How to invest in media? Suggests off balance sheet [i.e. content and/or project based]
§ This can also be used in conjunction with equity based financing
§ The equity gap remains high but is on the UK Governments agenda to address
An investable business should demonstrate:
§ Competitive edge
§ Good people [top and bottom]
§ Something different
Things for you to be aware of:
§ Keep abreast of the changing media/business landscape
§ A good network is essential so as to maintain a good flow of intelligence
§ Any investor you may seek needs to be knowledgeable
§ Media investment is seen as high risk
§ The fiscal climate has worsened
Other related comments:
Progressive media companies:
§ Take advantage of market changes
§ Harness technology, regularly change and seek shorter routes to market
§ Such companies now have a real economic relevance
Content:
§ The fuel that fires any media rocket!
§ Can be scaled up quite easily at little cost
Convergence:
§ The choice of how to receive a service or choice of transmission
§ Gives rise to innovation, thus risk but potentially high returns
3.0 Iain Daly – Associate Director, Equity Research, Bridgewell Group
§ Institutional Perceptions of UK Quoted Media
§ Factors that encourage a cautious attitude
§ Identifying the signs of success
Quoted media stocks have recovered since the dotcom bust, but still underperforms the market overall. Currently they represent 4% of the overall value of the stock market.
New entrants are now much better due to the experiences of the past and better business models [business publishing sector stands out as a good one].
However, the media sector is seen by investor’s as more cash generative that others
Investor’s perceptions?
Media businesses are seen as ‘challenging’ in the main as:
§ Media is now even more complex!
§ Fragmentation and marketplace trends
§ Growth in companies attacking existing ones
§ Most of a businesses value is based in IP and people [how to quantify?]
§ Advertising business values are going down, whilst content based businesses values are on the increase
So what are the investor’s looking for? Simply:
§ Good growth planning [including potential mergers and acquisitions]
§ Earn outs to ‘lock’ key people in
§ Good margins [nothing new there then?]
What are the investors’s thought processes and likely questions?
§ What is the value based on the business model and sector
§ What is the on line capability
§ Peer group differentiation
§ Track record of both the business and the team
§ Growth prospects leading to a good return on investment
§ Valuation?
§ Growth, earnings and cashflow
§ Suggested framework to include; price to earnings multiple, equity and debt structure and a cashflow measure [i.e. free cashflow yield – in short, operating cashflow]
4.0 Paddy MccGwire – Managing Director, Cobalt Corporate Finance
Achieve strategic value on exit, why acquisitions fail: a guide to good and bad practice in M&A.
§ Identifying value drivers
§ Impact of process
§ Importance of preparation
General
§ The average deal value in mergers and acquisitions is growing
§ It’s important that you align both the value and operational strategies of your business from concept to start-up and beyond
§ Don’t run the company with a view to exit at the start – you may well change direction
§ Rather, let your exit awareness inform operational decisions
§ To achieve optimal value, don’t leave it too late to decide as this will work against you
Mission Ready Process
Within your business:
§ Identify your sustainable and advantageous differentiation
§ What constitutes value?
§ How [and what] does a potential buyer see as value
Value destroyers
§ Ease of integration into the acquirers/buyers business [easy or hard?]
§ What customer/supplier/partner agreements will they inherit and how robust are they?
§ What is the existing personnel reward structure[s]
§ Current management information processes
§ Clarity and security of intellectual property
§ Are there vendor alignments of interests?
§ Forecast visibility [how robust are your financials looking ahead together with supporting information]
Motivation of the buyer/acquirer
§ On occasions, defensive [sees you as a threat]. But this will not always drive a high price
§ Geography
§ Buy or build
§ Bulk
§ Opportunity [revenues for the acquirer, ease of exploitation, differentiation, ease of execution i.e. proof points/partners]
Valuation Factors
§ The ‘myth’ of multiples? Confused, then ask your Accountant!
§ The motivation of the acquirer
§ Value drivers i.e. where are you in the high growth market? Are you in a leading market position? Have you a differentiated product or service? Are you thought leaders? A hot sector? Visibility of proof points [what can you do]?
Questions to consider
§ Who can best utilise and leverage your underlying assets and capabilities?
§ Work out what needs to be done, reflect this in your operational strategy and align to all stakeholders
§ Timing and a plan
Suggested process
§ Preparation [what are the key issues and key tasks?]
§ Draft the documents
§ Identify appropriate potential acquirers [remember the value of you to them, their character and ambitions]
§ Initial offers
§ Acquisition due diligence
§ Job done
Remember to:
§ Think like the buyer
§ If you are using advisers [and this is recommended], then incentivise them
§ Proper Planning Prevents Poor Performance [the 5P’s]
5.0 Chris Satterthwaite - CEO Chime
The changing roles of brands in the media sector
Christopher began his commercial career as a graduate trainee at H J Heinz. Since his grounding on the client side he has been part of three different kind of marketing communication agencies, IMP 1981-1993, then the UK’s largest Sales Promotion and Direct Marketing agency; HHCL & Partners 1993-2000, Campaign’s Advertising Agency of the Decade; Bell Pottinger 2000-2002, the UK’s leading PR agency.
Chris was appointed Chief Executive of Chime Communications PLC in 2002, the holding company of Bell Pottinger, Good Relations, Harvard, Insight Ozone, De Facto, Resonate, Rare Corporate Design, The VCCP Group, Teamspirit, TTA Group, Opinion Leader Research and The SMARY Company.
§ The importance of media brands in directing consumers towards your content
§ Managing media brands through periods of acquisition and growth to maintain investor, employee and consumer confidence
Chime is a group name and there are 30 companies within the Chime Group. Boasting over 1,000 clients, Chime currently has a market cap of £125m [it was £0.5 billion 5 years ago, reduced to £25m in 2 years but now recovered to current level].
Chris was keen to point out that he knows a lot about high and low growth!
Chime has a 3 year plan and seeks to achieve:
§ Highest profit margin in its sector
§ X number of market relationships across 20% of it’s client base leading to 60% of overall income
§ Raise the average fee per client
§ Leverage high growth sectors
§ Increase overseas income
To support this, Chime say that they are ‘to be the modern communications group’ by:
§ Being up to date
§ Being in touch
§ Building and sustaining social and business networks
§ Making reputation the most important measure of all the work they do
Chime recognises that internal marketing is key thus Chris recommends over communication to your people [keep them informed and up to date].
Building a media brand
§ Reputation is all
§ Look after both the brand and reputation
§ Brands are owned by the customers not you
§ Brand newsrooms will replace the traditional Corporate Communications channels i.e. what the Labour Party have been doing since in Government
§ Reputation was hard to govern and traditionally was attributed to 1) what you say 2) what you do and 3) what other people say about you
§ Now/today we have to reverse this model i.e. 1) what other people say about you 2) what you do and 3) what you say
Media brands are very important in directing customers to you
Consider Google; it’s no longer a search engine but a reputation management system.
Chris’s best brand in the past 5 years? O2
Neil Higginson
Head of Business Development
Premier Employer Solutions
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