2009 was the year in which financing activity almost came to a standstill. This was also the case for the Hispanic and Latin American marketing, advertising and media space. In addition to the macroeconomic troubles, the advertising, marketing and media sector are undergoing industry specific structural changes which have impacted risk levels.
How have things developed in 2010? Well, while liquidity has not returned to the market, credit conditions have improved. Credit has started to flow again. In some cases, banks have eased the financial burden current loans have on companies by modifying their agreement. (This was the case of a loan agreement between Goldman Sachs and Hispanic print and digital media company Impremedia).
Have things also changed for start ups and midsize companies? ”As a merchant bank providing investment banking and principal services in the Latin American/US Hispanic Technology and Internet industry, we receive more inquiries from financial buyers interested in reviewing investment and buyout opportunities, even at the lower tier of the middle market”, Pierre-Georges Roy, partner of New York based GroupArgent, tells Portada.
”We believe that there is rising interest in and around the Hispanics segment of the US population as an investment theme. Similarly, there is now increased interest on the part of US investors in Latin American headquartered technology and Internet companies (chiefly, in Brazil, Mexico, Argentina, Colombia and Chile) as long as they are fiscally transparent and have good financial reporting systems. Specifically, the sectors we are focusing on are: online marketing technology, advertiser focused ad networks, online payment systems, social networking and mobile applications.”
Roy sees the main risks in “macro trends rather than at enterprise level. The macro trends we worry about are currency fluctuations in our key target countries (US, Brazil, Argentina and Colombia), political stability, employment figures, GDP growth, and advertising spends.”
How have valuation levels of media and marketing companies been evolving? One way to find out is to ask buyers and sellers and other parties involved in transactions how they value different companies/sectors. Media investment bank Admedia Partners did so. Through a web-based survey AdMedia Partners interviewed 7,400 U.S. and foreign executives in the advertising, marketing services, digital marketing, marketing technology, media, digital media businesses and related venture capital/private equity investors. The results are displayed in the table below. Respondents where asked at what multiples they would be ready to acquire companies in different sectors. In general, expected marketing services multiples increased significantly from the prior year (2009).
The median multiple of operating profits that respondents consider reasonable for valuing advertising agencies has remained steady for the fifth consecutive year. Respondents expect that valuations across all media and digital media sectors will slide in 2010, a pattern similar to last year’s results.
Hispanic and Latin American Valuations
The valuations in the table below are for both U.S. and international companies. For the U.S. Hispanic and Latin American markets, Portada estimates, that on average, the multiples are higher due to higher growth rates in these markets
* EBITDA (Earnings Before Interest Taxes Depreciation and Amortization) for the other sectors the multiple is based on EBIT.