An insider recently told Portada, “For clues on the approach of the private equity and venture capital community to the current economic downturn, look at a presentation about start-ups and the economy by VC firm Sequoia Capital.”
One slide, in which Sequoia provides advice to the CEO’s of its portfolio companies, contains the following bullets points:
- Perform Situation Analysis
- Adapt quickly
- Use a zero-based budgeting approach
- Make cuts
- Review Salaries
- Employ a heavily commissioned sales structure
- Bolster Balance Sheets
- Become Cash Flow Positive as soon as possible
The above bullet points show reasons why smaller, private equity/VC backed Hispanic media and Advertising firms are in a relatively better position to weather the downturn than many of the larger leveraged ones.
For starters, smaller companies can not leverage themselves like some of the larger ones can due to the fact that they tend to be smaller/more risky propositions. As Hispania Capital Partners Managing Partner Victor Maruri tells Portada, “companies that are not highly-leveraged have more options. Private equity funds last 10-12 years. They invest in companies because of their growth perspective and don’t bet so much on leverage to increase their ROI.” Debt-to-Equity ratios for these types of companies range from 0.5 to 1.
In addition, many of these companies are positioned in attractive sectors (Multicultural Research, Digital Media) that are growing despite a flat to negative general market growth outlook.
Batanga: Conservative Approach
Batanga is not planning any drastic changes to the organization, Portada has learned. The online, live events and publishing company whose main investors are Tudor Ventures out of Boston and HIG in Miami, has been relatively conservative from its inception.
Having said that, Batanga is trying to find ways to conserve cash without sacrificing the product and still be placed for significant success when the economic cycle turns up.
Batanga’s investors are also open to new acquisitions (Batanga bought online ad-network Hispano Click in January). In economic downturns, acquisitions often can be found at interesting prices.
Impremedia: Goldman Sachs credit line
How is Impremedia doing? “Basically the same as any other advertising supported business. We expect revenues to remain soft for some time to come and are and will continue to take appropriate measures to make it through the cyclical downturn, however deep and prolonged it may be,” says Daniel Jinich, Managing Partner of Acon Investments, a Washington DC private equity fund that has a stake in Impremedia.
Impremedia has a $82.5 million credit facility with Goldman Sachs Specialty Lending Group, an investment platform dedicated to providing financing solutions to middle market companies based in the US and Canada. This is a relatively low amount of debt for a company the size of Impremedia. Impremedia has been using the credit line to acquire other media properties (e.g. Rumbo at the end of 2007) and expand its digital offerings through portal Impre.com.
Todobebé: Multiplatform strategy
Todobebé, a multi-media company dedicated to the Hispanic and Latin American parenting Market, got a $15 million investment from NYC-based private equity firm Palladium Capital Partners last January. As other smaller companies Todobebe does not have major funding problems. Exposure to the Latin American market may also diversity its risks.
Last week, the company announced that it is bringing its hit parenting show "Viva la Familia!" to Mexico in a deal with Televisa.
QuePasa: The only public equity play
The bilingual portal and Hispanic social network, which also offers its services to the Latin American market is the only “smaller” company in the Hispanic media market that is publicly quoted (Nasdaq). Disclosures to the investor community show that last January the company borrowed $7,000,000, including $5,000,000 from a company controlled by one of our non-employee directors. The notes are due in 2016;
QuePasa’s revenues are still low. According to a statement released last Friday the reason for low revenues is the following: “In September 2007, QuePasa launched a new beta version of its website, which experienced technical difficulties and performance issues that adversely affected its amount of traffic. In late October 2007, a new senior management team was put into place and immediately began to address the performance issues with the website. The bulk of the banner advertising campaigns were discontinued in the fourth quarter of 2007, and efforts to generate additional banner advertising campaigns were temporarily put on hold while emphasis was placed on enhancing the functionality and the content of the website, in order to drive sustained traffic to the site. In February 2008, it re-launched its website and experienced a 222% increase in page views during the second quarter of 2008 from the first quarter of 2008, and a 316% increase in page views during the third quarter 2008 from the second. QuePasa is hopeful that website traffic will continue to increase in the fourth quarter of 2008 and believes that there will be a direct correlation between website traffic and its ability to increase revenue.
Next Monday: A review of Meredith, LatinForce, McClatchy, Belo, News Corp., Gannett and others.