@ EconAds: Nancy Peretsman, Managing Director, Allen & Co., It's All About The Buyers
This story was written by Staci D. Kramer.
Having been in the middle of some of the most significant digital media deals, through her position as Allen & Co. Managing Director, Nancy Peretsman is uniquely qualified to dive deep into the economics of the big stories: Microsoft-Yahoo (NSDQ: YHOO) being particularly noteworthy. During a one-on-one discussion with Rafat Ali during EconAds, Peretsman predicted the future deal activity will in large part be guided by what, if any, deal Microsoft (NSDQ: MSFT) and Yahoo agree on. "If Microsoft ends up buying Yahoo, I think the landscape for the deals business, or the investment business, will probably be in the short term less interesting." This is straightforward to understand: If Microsoft were to swallow whole, then it would be in the position to do more deals. But if there's just a JV or a search deal, this leaves open all kinds of opportunities. Yahoo would still likely be an acquirer of smaller content companies, for example.
This was a key theme of the discussion: It's not really sellers, it's about buyers. When the buyers are hungry, times are good and premium companies can get the multiples they want. Take Bebo, for example. "I think people feel like that was a pretty good valuation for Bebo," Peretsman said to quite a few chuckles. But she defended Bewkes against the notion that AOL (NYSE: TWX) overpaid and that was that. If you decide that you need to be in social networking, and you need to get international, what else is there?
-- Building on Eyeballs: "For companies that have had a lot of eyeballs, the question that has faced them is 'how do we best monetize those?'" There are all kinds of models from enlarging the network via acquisition, or buying lots and lots of different types of firms that can squeeze more dollars from them (think: AOL). This is just one model, while the other is for companies to think more along building out high-premium verticals. She described CBS-CNET (NSDQ: CNET) as a proto example of this emerging strategy. MTVN's (NYSE: VIA) purchase of Neopets also fell into this category
-- Demanding a Return: A member of the audience posed a question that's been asked a lot: When will these buyers demand to see a return on their big acquisitions? Peretsman rejected the premise, suggesting it was a myth that digital acquisitions never drive significant financial upside. She noted TripAdvisor's sale to Expedia and two purchase by Priceline in Europe (note: those come off as a little thin). Investors grade their management not just on operations, she said, but on capitol allocation, and on this front they have three options for their cash: "use it to buy things, use it to invest in your own business, or you can return it to your shareholders." Media company management don't operate in another dimension: ultimately it's about finding the right combination of these uses of capital.
-- Timing: Again going back to this theme that it's the buyers who set the market. She noted that often there are good companies that should justify good valuations, but the logical buyers (who would pay the most) are suffering indigestion for whatever reason. Even if the buyers are actually interested, the timing means it won't work out. She likened it to a wedding there's more to getting married than just agreeing that the partners are compatible and love each other.
By Staci D. Kramer