As traditional news outlets struggle to grow readership and boost profitability, many are looking to new-media platforms to complement their offerings and generate revenue. Often, as with German publishing giant Axel Springer’s recent purchase of Business Insider, such deals carry a hefty price tag.
The $343 million deal was announced in September, valuing the Internet news site at $450 million. While that may sound high, Kevin Ramsier, managing partner with Vesticor Advisors, says it may be less surprising than it appears.
“Whenever an industry like this changes, when consumer preferences are changing rapidly, we see valuation models almost get thrown out of the window at times,” Ramsier says.
His firm provides clients with M&A advisory services, helping them prepare their businesses to sell at maximum value. Following a mega-deal like the Business Insider sale, Ramsier and his team evaluate the transaction, looking for takeaways they can pass along to clients and for larger trends that may impact the industry.
One reason for the premium paid for Business Insider, Ramsier notes, is the site’s relatively young and mobile-friendly audience. Axel Springer is the leading publisher in Europe with the largest share of Germany’s print newspapers, including its flagship tabloid Bild. With BI, Axel is acquiring an asset pulling 60 percent of traffic from mobile devices and 39 percent from social networks, according to Ramsier.
“This demographic shift and consumer preference shift—not a lot of people talk about it as a driving force in some of these strategic M&A deals, but that’s really what it comes down to.”
While BI isn’t Axel’s first digital asset, its 76 million unique monthly visitors will make Axel the world’s sixth-biggest digital publisher, according to The Wall Street Journal.
BI’s site features short, easily shareable articles, many of which are aggregated from other news outlets. Its headlines are often written as so-called “click-bait,” designed to appeal to a younger audience and grab readers’ attention.
“This demographic shift and consumer preference shift—not a lot of people talk about it as a driving force in some of these strategic M&A deals, but that’s really what it comes down to,” Ramsier says.
He notes, too, that the acquisition expands the English-language audience for Axel, whose readers are primarily German speakers.
A Good Deal?
Ramsier sees the financial strategy behind the BI purchase as multi-pronged: first, to expand Axel’s digital reach, or in tech speak, to “acquire as many eyeballs” on content as possible. Second, to monetize those views and finally, to maximize the profit from the revenue dollars.
Like many Internet-based media outlets, BI uses an ad-based revenue model, which Ramsier notes comes with challenges. For one, pop-up blockers are more readily available than ever, potentially threatening the viability of an advertising-based model. Competition from other niche outlets may also present an obstacle to the growth BI has achieved since its launch in 2007. Despite these potential hurdles, however, Ramsier sees Axel preparing for the future.
“I think they’re willing to bet that they’re not going to see less people getting their news from digital sources, we’re only going to see more of it. I just hope that they can capitalize on it,” he says.
While BI will certainly expand Axel’s reach, Ramsier sees the deal as mutually beneficial. With annual revenue of about $3.2 billion, Axel is a large player in the media market, and Ramsier believes the publisher will likely improve upon BI’s offerings. Meanwhile, BI’s co-founder and chief executive, Henry Blodget, has agreed to stay on board with the company. Amazon’s Jeff Bezos also maintains the 3 percent stake in BI that he acquired in 2013.
While the BI acquisition was a blockbuster, it’s an illustration of broader industry trends, Ramsier says. As traditional media outlets look to attract wider (and younger) audiences and adapt to the digital landscape, many don’t feel equipped to do it on their own. Instead, many seek smaller firms or equals they think can add value.
According to Ramsier, traditional companies are looking at digital outlets and thinking, “Let’s not reinvent the wheel, let’s just go out and acquire or partner with them and look different than we do now five years down the road.”
“Companies that aren’t changing now to redefine themselves down the road, I would be surprised if they’re here (in the future),” he adds.
Asked if private equity firms are targeting digital media companies for investment, Ramsier says these investors seem to be waiting in the wings. Strategic buyers have been active this year, driving up valuations; private equity investors may be waiting for prices to settle before jumping in.
They may still have time. Ramsier sees this as just the beginning of a new phase in the evolution of the media industry.
“We’re seeing that companies need to compete and need to go out and get the customers they’re losing by not being reactive to their needs. We’re seeing that happen in front of our eyes, and I think it’s the early stage of this,” he says.