Selling Your Media Business: The Components of Valuation



By Michael Alcamo, Guest Author

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Selling your media business? These 6 keys will help.

Considering a sale of your niche media business, but not sure how to get your highest and best price?   We consulted Michael Alcamo, President of media investment bank M.C. Alcamo & Co., Inc. and a popular speaker at our Niche Media conferences.

Michael often discusses with an owner the Six Keys to achieving the highest and best valuation.  These comprise: 1) employee talent, 2) operations, 3) financials, 4) products, 5) market perceptions, and 6) the components of valuation.

In this post, Michael addresses Key #6, Understanding the Components of Valuation. [Read more…]

Optimize Market Perceptions to Maximize your Media Company’s Valuation



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Thinking about selling your media business? Here’s some sound advice from Media Investment Banker
Michael Alcamo.

Considering a sale of your niche media business, but not sure how to get your highest and best price – while also keeping your team focused on growth?  We recently consulted Michael Alcamo, President of media investment bank M.C. Alcamo & Co., Inc. and a popular speaker at our Niche Media conferences. In this post, Michael will address Key #5, Maximizing Market Perceptions.

When thinking ahead to a sale in twelve to eighteen months, it’s critical to condition the market of potentially interested purchasers.

Here are five important steps you can take to optimize the perception of your business among the M&A staffs of the most relevant buyers.

1.  Labeling is Key.  

The public profile of your business should reflect your operations and your ambitions. Consider the way the world perceives you – starting with your name.

If, for example, your business owns a series of education and conference products that have grown larger than your legacy print platform, then make sure this is reflected in your business trade style.  The same holds true if your ambitions lie in developing conferences and meetings. [Read more…]

Turbocharge Your Media Company’s Product Mix to Achieve a Maximum Valuation



We often discuss with an owner the Six Keys to achieving the highest and best valuation.  These comprise: 1) employee talent, 2) operations, 3) financials, 4) products, 5) all-important market perceptions, and 6) the components of valuation.

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Turbocharge your product mix–Michael Alcamo tells us how.

Today we’ll explore Key 4: 

Optimizing Your Mix of Products and Revenue

A successful and valuable media business is one that is an important partner to its clients and their industry.   If you are thinking ahead to a business sale in twelve to eighteen months, here are four priorities that can optimize your product mix, and help you achieve a highest and best sale value:

(Editor’s Note: Even if you aren’t planning on selling your media company, you should be using these four strategies to increase revenue and build up your business!)

1.  Niche out your key digital properties.

If you own one or two central media properties, try to niche-out those properties into multiple, profitable properties.  By querying and segmenting samples of your list, you can create interesting and useful content in new, niche categories.   Ensure that all new readers identify their interests, so you can understand and serve niche audiences.

Increasing your digital revenue will make a big difference in company valuation, because digital businesses receive a higher valuation multiple on exit.  And, because of its low capital costs, low cost-of-goods-sold, and its typically high growth rate, digital revenue is generally accorded a revenue multiple, rather than an EBITDA multiple.  In fact, in a growing, well-capitalized category, digital revenue can see a valuation multiple of at least 3x, if not more.  (Recall that LinkedIn went public at 35 x revenue.) [Read more…]

Preparing Your “Maximum Return” Financial Package for Selling Your Media Company



We often discuss with an owner the Six Keys to achieving the highest and best valuation. These involve: 1) employee talent, 2) operations, 3) financials, 4) products, 5) all-important market perceptions, and 6) the components of valuation. Today we’ll explore Key 3:  Finances.

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Here is Michael’s Key #3 on how to prepare the financial package before you your media company.

        1.  A successful presentation may require adapting your financial reports, and including ample explanatory notes and reconciliations.

Like so much in life, in selling a business, you get one chance to make a great first impression.  So, make sure you are making that impression accurately, while also accentuating all your positives.

In particular, financial statements for a niche media business often need to be organized differently to be effective in a sale.  For example, owner-operated businesses prepare annual financials for tax purposes; however, these do not illustrate profitability very accurately.  And, financials usually do not provide metrics on a divisional or product basis.

Be prepared to provide P&Ls by business unit or by asset, with relevant comparisons to prior years.  Moreover, if like many owners, you spend a lot of time in December pre-paying expenses for the coming year, be sure to categorize these pre-paid items clearly.  Your pro forma analysis can attribute these costs to their proper periods.  This will correct your annual operating profit (or “EBITDA,” more on that later), to its appropriate level.

Alternatively, niche businesses held within larger groups are typically charged a pro-rata portion of corporate overhead and shared central services.  This charge is applied pro rata according to the division’s share of total revenue, share of total costs, or share of total full-time employees. Thus, by overstating costs, divisional financial reports usually misstate a business’s true profitability. Your financial package can thus start with a parent company’s internal books and records, and include a pro forma analysis that normalizes any pro rata charges in a consistent manner. This approach can qualitatively improve your perceived valuation.

In the preceding examples, your objective is to set forth a meaningful illustration of a business’s earnings prior to interest, tax, depreciation, amortization and unusual or non-recurring charges, or “EBITDA.”

However, you will not find a line item for EBITDA on GAAP or tax financial statements, because EBITDA is not a concept recognized by GAAP. Moreover, a CPA will usually not wish to calculate EBITDA for you, as it may incorporate certain industry-specific judgments.

The EBITDA analysis is nevertheless an important part of your presentation. By making the right adjustments to your financials, consistent with industry practice and custom, you can describe the true profitability of your business.

          2.  Always practice “Aggressive Truth Telling”.

There will be potentially negative costs, trends, or adverse issues in every deal. However, a seller always gains significant credibility with purchasers by proactively disclosing such problems, and clearly explaining any judgment calls an owner has made in his or her company’s favor.  We call it “radical transparency,” or “aggressive truth telling”.

In a recent transaction, an owner included under “Sales” a very large amount received from a business interruption insurance policy, after a flood.  The owner felt that excluding this amount would unfairly penalize his business.

We explained that insurance proceeds in respect of lost sales do not really represent “sales.” To include these in revenue could impair a seller’s credibility, or could well lead to a complaint or litigation after a closing.

Instead, by disclosing separate line items for sales and then for “business interruption insurance proceeds,” we were able to assure the purchaser that all relevant information had been disclosed.  The purchaser could thus rely in part, but not in full, that such sales would return the following year.  The transaction closed successfully – including a partial escrow, which the seller ultimately received in full.

Also, owners sometimes include family members on a company’s payroll, a practice that the IRS typically permits, because the Service generally accords latitude to family-owned enterprises.  However, it is important to disclose family relationships, particularly if these persons have different last names.  And it is critical to explain clearly the job responsibilities of such family members, and whether these persons will be essential to the business after a closing.

As part of your “aggressive truth telling,” it is also important to explain whether an owner has personal responsibility for specific sales accounts, and to understand that a buyer may fairly apply a P&L charge for any sales commissions required to maintain and expand this book of accounts.

Aggressive truth telling is a better policy in all things.  And, in practical terms, your deal might not close if a buyer learns shortly before the closing that “house accounts” actually depend on an owner’s longstanding relationships.

            3.  Provide realistic and credible projections.

It’s important to prepare reasonable forward-looking forecasts with revenue estimates that your leadership team can meet or exceed. Credible projections can signal confidence and ambition. Ideally, these projections should be created by your leadership team themselves.  At the same time, projections should be conservative, so that during the sale process, you can consistently advise potential purchasers that targets have been met or exceeded.

Moreover, whether or not you the owner wish to remain with a business post-closing, it is important to have a business strategy plan illustrating the potential your business can achieve. Owners often have a relatively unstructured list of initiatives they could pursue — if only they had greater marketing resources.  Now is the time to illustrate initiatives on which your team could execute, assigning levels of potential revenue to each new project.  A strategy plan will illustrate clearly that your key employees are optimistic and ambitious, and ready to execute a ten-point growth plan under a new owner.

 

Editor’s Note: Stay tuned for Michael’s upcoming Thursday post on Key # 4: Products. You won’t want to miss it!

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272b211More about this blogger: Michael Alcamo, President of M.C. Alcamo  & Co., Inc., serves owners of digital niche media companies in originating and advising strategic business and asset sales.

 

 

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Niche Media has created super niched-out events specifically for magazine publishers for over 12 years, including the upcoming Niche Digital Conference this fall in Nashville. We’ve helped pave the way for the era of boutique events that connect specific audiences and provide great educational, friendly and super-fun environments! Plus, Carl Landau – Niche Media’s Grand Poobah – just launched a blog all about creating and marketing targeted events.  blog.NicheEventNation.com  Check it out!

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What’s the “Curb Appeal” of Your Media Business?



In a recent blog post, media investment banker Michael Alcamo shared with us the 6 Key Areas to focus when you are thinking of selling your media company.

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Thinking of selling your media business? Here’s Key #2 of 6 areas to focus on for the best outcome.

This week we’re focusing on key area #2: increasing the “curb appeal” of your media business before you try to sell it. Get your financial house in order and you’ll get the best return on the sale!

#2: Make Operational Improvements and Resolve “Staging Issues”

A homeowner gets the best price for his or her home when the house is painted, the dishwasher works well, and the roof is in good shape.  In real estate, it’s called “curb appeal.” Similarly, when you sell your media business, think how your business will stand up to a “house inspection” as rigorous as one conducted on a house.

 Here is a five-part checklist that we give our clients for improving the “curb appeal” of their business well in advance of a sale.

            First, revisit your profit & loss reports top-to-bottom.   If you have had a long and fruitful relationship with your major vendors, now is a good time to negotiate for a 5% reduction in large fixed costs – such as rent, technology, or production.  A printer, for example, will likely offer a discount to a purchaser of your company to keep the business, so why not try to lock in that improved pricing now? [Read more…]

Selling Your Media Company? Get Your Team On Board to Maximize Value!



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Thinking about selling your media business? Here’s some sound advice from Media Financial Guru Michael Alcamo.

Considering a sale of your niche media business, but not sure how to get your highest and best price – while also keeping your team focused on growth?  We recently consulted Michael Alcamo, President of media investment firm M.C. Alcamo & Co., Inc. and a popular speaker at our Niche Media conferences.

Alcamo says he explores the ways that an owner can think 12-18 months ahead, and put the building blocks in place for a successful sale at a high valuation. “We often talk with owner in depth about the Six Keys so they can achieve the highest and best valuation.”

Here are Michael Alcamo’s 6 Keys to Your Best Valuation:

1) Employee talent

2) Operations

3) Financials

4) Products

5) All-important market perceptions

6) The components of valuation

In this post, we are going to address Key #1, Employee Talent:

How Do I Talk to My Employees About a Sale?  [Read more…]