Michael Thieberg, Consultant, Arche Value Management, Inc.
Written by Michael Thieberg, Consultant, Arche Value Management
Why does “smart” capital lag behind innovations in technology? This was the first question posed by Kevin Worth, CEO of The Deal, who moderated a panel of capital markets experts – research analysts, venture capitalists, private equity investors and M&A advisors to solicit their views on asset valuations and the financial outlook for the information services sector. Tolman Geffs, Co-President The Jordan, Edmiston Group acknowledged that while capital is smart in the long-term, it is not smart in the short-term. As the late 90s speculative dot-com bubble has taught us, advents in technology don’t necessarily manifest themselves into proven business models.
Consequently, although there are pockets of froth (e.g., Salesforce.com’s $689M acquisition of social media marketing platform Buddy Media), we’re in a buyer’s market with larger information publishers remaining fairly conservative in their M&A activities, says Geffs. This sentiment was further exemplified by RRE Ventures Co-Founder, Jim Robinson, who cited the buzz around Big Data, which has yet to materialize as a working business model, as a big idea in the sector that has yet to earn the faith of the capital markets.
With regard to asset valuations, there was an air of optimism amongst this group. According to Piper Jaffray & Co. Research Analyst Peter Appert, established publicly-traded information services companies will trade at a premium to the market due to attractive business model characteristics including top line visibility and predictability (due in part to subscription-based revenue models), operating leverage from scalable, data-rich platforms, strong cash flow generation and low capital intensity. With regard to debt financing, companies with least $10M of EBITDA, leverage equal to 3.5x -4.0x EBITDA is highly achievable says Geffs.
Ongoing access to capital and financing, strengthened balance sheets and divestiture activity will continue to fuel deal activity in 2013. M&A and strategic investments in emerging marketing automation companies is one area in particular which will be a focus for the information sector. There are definitely B2B opportunities for fee-based, curated, moderated social media, says Wayne Cooper of Greenhaven Partners, a private equity firm that invests in emerging information-based companies. Furthermore, social media will continue to impact on the sector in 2013. There isn’t a credible large organization that isn’t struggling with its social media strategy, says RRE’s Jim Robinson. Companies will be spending a lot of money on social media technologies and platforms to better understand the buying behavior of their constituents.
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Michael Thieberg
Michael Thieberg is a independent consultant at Arche Value Management (AVM), a corporate finance advisory firm. Mr. Thieberg has over 15 years of strategic financial management experience in corporate development, investment banking and private equity investing with industry expertise in the B2B information and marketing services sectors.