We have conducted analysis on the public international media, information and technology equity markets to explore how the broader segments and underlying sub-sectors have fared in terms of valuation and profitability YTD.
We have also analysed how businesses are viewing 2021 in terms of revenue growth projections and recovery.
Total equity market value up by 8% since January 2020
The Media, Information & Technology public equity markets continue to perform strongly, with total market value up by 8% since January 2020 against a backdrop which has seen other benchmark indices fall 5 – 15%.
2020 EBITDA outlook revised down by aggregate $65bn
This growth in total market value has been achieved despite uncertainty around 2020 outlook which currently shows a material decline in the 2020 earnings; notably current. 2020 EBITDA market estimates have come down by $65bn since January 2020.
Average 12% revenue growth forecast for 2021 across sectors
From a valuation perspective, it feels clear that investors are looking through the 2020 numbers and pricing in strong recovery across virtually all sectors, with 12% total market revenue growth forecast for 2021.
From an M&A perspective, whilst the valuation environment remains opaque, it is clear that the strong stock prices which many corporates have sustained through this period will be highly relevant in terms of deal pricing, consideration, and structure.
We are delighted to announce that Vangelis Livanis has joined the firm as Managing Director, Debt Advisory.
Vangelis will be responsible for building out our debt advisory practice serving companies and private equity investors across the European mid-market. The new full-service offering includes acquisition financings, refinancings and covenant amendments and will complement our existing core M&A practice and further reinforce our position as a leading global corporate finance advisory firm.
Vangelis has extensive debt advisory and restructuring experience, having previously been a member of the Zeus Capital and Lincoln International debt advisory teams, where he focused on mid-market private equity transactions. Prior to this, he worked in Deloitte’s Restructuring and Business Modelling teams.
“Vangelis’ hands on and detailed approach mean that we now offer senior-led, end-to-end, Debt advisory services to the market. We are particularly pleased to have brought him on board at a time when our clients are increasingly looking to a variety of both debt and equity solutions to help them navigate through the current market conditions.”‚ Jonathan Davis, Partner, JEGI CLARITY.
“Having previously worked with JEGI CLARITY, I have been thoroughly impressed by the quality of the team and their considered and dynamic approach to running a process. I am delighted to have joined the firm and look forward to assisting our clients in today’s market environment and beyond.” said Vangelis.
New York, NY, July 15, 2020 – JEGI CLARITY, a leading independent investment bank serving companies in the global media, marketing and information sectors, is pleased to announce that Kevin Moore has joined the firm as Managing Director.¬† With 25+ years of domestic and cross-border transaction experience covering the software, internet and technology sectors, Mr. Moore will further expand JEGI CLARITY’s global coverage across these core markets.
Prior to joining JEGI CLARITY, Mr. Moore spent seven years at GCA Altium / StellaEOC, serving as Managing Director. He covered internet and digital media as well as software for the firm.
We have spoken to senior executives at approximately 30 global corporates in the Media, Information, Marketing, Software and Tech-enabled services sectors to gain insights as to the impact of the Covid-19 pandemic on their M&A activity over the short to medium term.
1 Will you remain active in M&A over 2020?
60% of corporates we spoke to are likely to remain active throughout 2020 Uncertainty around the timing of a return to “normal” economic activity, however, will undoubtedly impact their M&A volume, at least for the next few quarters.
For some, M&A will continue to be a key part of their strategy, while for others, a potentially less competitive M&A environment will allow them to be more opportunistic.
2 What impact do you expect to see on valuations across your sector?
Two-thirds of respondents expect a softening in valuations, while one-third don’t expect much change This expected decline will be due to both a reduction in multiples as well as the underlying metric they are applied to. However, valuation for strategic and premium assets is likely to see less of an impact.
3 Will current events change the way you structure M&A transactions?
Corporates were unanimous on the fact that the pandemic would impact how deals are structured At least in the short to medium term, the increased volatility has led acquirers to revisit the way their deals are structured, either as a way to bridge valuation gaps and/or to de-risk transactions. Several alternatives are under consideration and acquirers will be assessing their approach on a case by case basis.
4 How will you approach valuation given near term uncertainty created by Covid-19?
Respondents suggested that they will approach valuation case by case and look at a combination of metrics Corporates that continue to pursue M&A will be re-looking at the way they approach valuation, particularly for those assets impacted by Covid-19.
The Covid-19 pandemic, with its unprecedented lockdown measures, has unsurprisingly impacted M&A activity around the world. In the sectors we cover, activity for April and May was down c.50% on the prior year. However, deal activity is yet to hit the monthly nadir seen during the 2008 crisis. Though volumes will be down, for the large part, respondents to our survey confirm that they will remain active acquirers in the short to medium term. While many will be opportunistic on where they focus their attention, others will see more focused M&A strategies given the competing use of capital.
Early indications are showing that valuations and deal structures are being impacted to take into account near-term uncertainty, with both acquirers and sellers being more flexible and creative to get deals over the line. Further, premium assets in markets with predominantly strong tailwinds are still highly sought after and therefore less likely to have their valuations impacted.
While volumes will likely remain low for Q3, anecdotal evidence suggests that deal pipelines are building towards a more active final quarter 2020 … watch this space!
In light of the rapidly changing market environment following the Covid-19 outbreak we have spoken to over 20 UK and European Private Equity firms, across the mid-market, to gain insights as to the impact of this pandemic as well as to understand investment appetite over the short to medium term.
1 How is your portfolio performing given the current economic climate?
Overall media, information and technology-led businesses are holding up with the exception of those businesses directly exposed to challenged end-user markets and those reliant on in-person engagement for delivery of their solution.
More broadly, whilst there is a recognition that 2020 will be difficult on multiple fronts, over the medium term the underlying tailwinds across the sectors should drive recovery and growth
2 Where do you see opportunity to deploy capital over the next six months?
Capital deployment in the near term is likely to focused on three areas specifically: (i) opportunity / situation investments (e.g. restructurings and turn-arounds); (ii) bolt-on acquisitions for portfolios companies; and (iii) those sectors and business models which can demonstrate resilience through this crisis.
3 How is your pipeline of new opportunities?
Existing pipelines have largely dried up with most funds working internally on research projects towards building actionable opportunities for when the market comes back.
4 When do you expect to make your next platform investment?
Most funds are expecting a six-month hiatus given the uncertainty with the view being that markets will re-open in September for platform investments. A small number of funds believe that there will be opportunities which fit their profile in the next three months however.
5 Are your portfolio companies likely to be acquisitive in the coming months?
Funds remain open minded about add on acquisitions, acknowledging that there will be situations to add capability, scale and talent as competitors struggle.
Overall media, information and technology-led businesses are holding up and whilst there is a recognition that 2020 will be difficult on multiple fronts, over the medium-term the underlying tailwinds across the sectors should drive recovery and growth
Navigating the current environment with significant amounts of dry powder is a challenge that many European private equity funds across the board are have highlighted
In theory, a record amount of cash being available to spend should allow firms to be opportunistic. In practice however, the economic, social and financial uncertainty coupled with logistical challenges around deal execution means that new investments will be very difficult to execute in the near-term
Having said that, in the last week alone we are now seeing private equity funds start to put their heads above the parapet and look to future investments rather than inwards at their portfolio and we expect this trend to continue over the coming weeks to ensure they are able to act quickly when the market “reopens”