Five factors to consider when selling your media business

As advisors, we work with successful media businesses, entrepreneurial owners and quality management teams, delivering their sale processes. Whether selling lock-stock to a corporate acquirer, or taking an investment from a private equity investor, as a sell-side advisor our job is to minimise transaction risk, and get you the best possible terms  (through headline price, deal structure and broader commercial terms).

Vendors often ask us, when is the best time to sell my business? Our answer often revolves around the following five key factors.

1. Your own performance

Ultimately, a highly performing business will drive buyer appetite and higher valuations in comparison to a business where trading is flat, declining  or in distress. For any business going to market, it is about managing the optics, presenting the business and its performance, in the most attractive light.

Historical performance and underlying profitability

Strong historical performance that is expected to continue in the future will drive value. But it’s not just about presenting topline (revenue) and bottom line (profit or EBITDA). Buyers want to understand the ‘quality of earnings’, underlying profitability (based on ‘normal’ revenue and a cost base adjusted to exclude one-off, exceptional or discretionary items, to reflect market rate costs), drivers of growth (customers/products or services/price increases etc.), customer reliance (as well as retention and length of relationship), one-off revenue vs. contracted or recurring work etc.

This historical performance feeds into a buyer’s assessment of future performance.

Future performance with realistic growth assumptions

A business projected to grow will also drive value, but equally, these projections must be rooted in realism and logic. Buyers are put off by overly aggressive growth projections without any supporting evidence. They will take a cynical view of a ‘hockey stick’ growth curve, especially where these proceed historically flat numbers and look contradictory to what the business has previously delivered. They will also consider what costs and further investment is required to deliver that growth.

Leave a little in the tank to drive competition later

Contrary to what you might think, when managed in the right way, presenting a lower growth number compared to what you believe is possible can drive competitive tension and buyer pricing.

A key risk to value on deals is not delivering what you say you will deliver; this inevitably leads to price chips later in the process. Therefore, instead of putting your maximum number in the projections and running the risk of missing this, give the buyers a tempered number – one that you are certain you will hit. This means that you avoid the risk of under-performance. And, crucially, should trading come in above projections, you can present updated numbers to your buyers later in the process and tell them to re-bid off higher numbers. To all intents and purposes, the business is performing better than buyers had expected, therefore they should pay for this. Optically, a business that beats its projections is more attractive than one which misses budget and will drive further competitive tension.

Optically, a business that beats its projections is more attractive than one which misses budget, driving further competitive tension.

Below is an example that shows run-rate EBITDA analysis, starting with the EBITDA as per statutory accounts and visualising the process for getting to the final run-rate EBITDA figure. The run-rate EDITDA refers to the financial performance of a company based on using current financial information as a predictor of future performance. 

Naturally, beauty is in the eye of the beholder, therefore another factor to consider is how you present your information. The more clearly you can articulate the current value of your business and your growth plan, and more certainty you can give a buyer about delivering your projected numbers, the more likely you are to convince a buyer to base any valuation off a future ‘run-rate’ (higher) number. Valuation is as much an art as it is a science, so we need to give the buyer the tools and understanding to achieve your price aspirations, stepping them through the business’s EBITDA based on the latest statutory accounts to an adjusted run-rate number reflecting current value.

Selling when trading is strong, with a proven track record and a credible, demonstrable growth plan will maximise value.

2.What's happening in your market

The stronger an industry performs, the more attractive it is to acquirers and investors. In recent years, the media industry has grown from strength to strength. With notable growth – as to be expected – in TV and video, gaming and music, radio and podcasts, and a decline in some of the more traditional media niches including newspapers and magazines; with the smaller niches like cinema and books, anticipated to hold pretty steady. These results are broadly consistent with RSM's consumer outlook for 2024, with the results indicating most consumer groups are prioritising social activities.

The same logic can be applied when it comes to transactions, as more deals happen, this creates momentum. The market, buoyed by this activity, is therefore more confident. The result being more buyers, more sellers, an uptick in deal volumes and an uptick deal value.

In the media industry, performance has been broadly strong over the last 20 years. With the obvious downturns in early noughties and late noughties reflecting the global economy at the time and more recently a drop off in (the first half of) 2020 due to Covid-19. Since the pandemic, we have a seen a strong uptick in deal volume and values through to 2022. In 2023, the global mergers and acquisitions (M&A) market has slowed, however anecdotally, we are seeing media industry deals (in particular the MarComs space) continuing to perform strongly.

Selling in an active market is more likely to achieve maximum value.

As a counter point, it is worth pointing out that in a subdued market with fewer deals happening, this inactivity can create scarcity for the highest quality assets. As a result, acquirers and investors chase a fewer number of deals, driving competitive tension and therefore valuations for these specific assets.

Of course, where your business sits within its market and how poised it is to take advantage of evolving market dynamics (think AI, data analytics and the media through which content is consumed) will also drive value.

3. The strength of your management team

A business that has a quality management team with proven track record is another key factor that will maximise value.

For the most part, a business is only as good as the people in it. Having the right people in your business can drive buyer appetite. Afterall, a complete management team de-risks a buyer. We are seeing more corporate buyers favouring the status quo in the short-term post completion, buying and leaving the business alone to continue as it was pre-deal. Only implementing material changes once they have a full understanding of the acquired business.

In addition, more often than not, we are seeing vendors, or rather their value, tied to the performance of their business for a period of time post deal. This can be through equity, earn-out or other performance rewards. 

Naturally, when it comes to private equity, management teams are even more crucial. Private equity (PE), after all, are putting their money into these businesses in the hopes they will double (as a minimum) this investment in the next three to five years. Ultimately this growth is based on the management team whose growth plan the private equity investor is backing, therefore the quality of the individuals within this team is of utmost importance.

4. The strength of the economy

A rising tide lifts all boats. A strong economy (much like a strong market) will drive confidence, activity, numbers of buyers and pricing. It will also drive availability of, and access to, funds, both debt and equity (public and private markets). 

Conversely, as my old boss said, a recession really boils down to a lot of people not making decisions. Buyers not buying, investors not investing, people like you and I not going out for dinner or not buying a new pair of shoes. This inactivity has a negative impact on any sales process, fewer buyers, less competition, more perceived risk and therefore lower valuations.

Similar to selling in an active market, selling in a strong economy is likely to maximise the chances of a successful deal at maximum value.

5. The tax environment

Selling in a lower tax environment means you are best placed to maximises after tax proceeds.

Regardless of the valuation you achieve and indeed the ultimate deal you agree, what matters is the bottom line, your value. What you receive in your bank account after all costs are paid. Tax is therefore one of the most important factors to consider when vendors are seeking to maximise their net returns. 

Proper tax planning is key and should be considered early and revisited often to ensure any planning taken and structures put in place remain effective and, efficient, and in line with the vendors’ aspirations. 

Tax planning only gets you so far. At the end of the day, if the tax rate goes up your net proceeds are going to come down. 

The ever-present danger of a more penal tax regime should be a key consideration for any vendor considering when to sell their business.

In recent years, we have seen Entrepreneurs’ Relief reduce, from 10% tax on lifetime gains up to £10 million, to 10% on £1 million (and ironically renamed Business Asset Disposal Relief… or ‘BAD’ relief). There remains continued speculation this relief will be scrapped altogether in the future. 

It is also worth bearing in mind that any future changes to the current tax regime are likely going to be more penal (rather than less) in terms of tax payable for vendors on selling their business. In short, for vendors, it’s as good as it gets right now… and it’s getting worse.

As the general election comes into view later this year, we are speaking to more vendors who are considering an exit now, concerned what a potential Labour government might do to the extant tax regime. 

Of course, the Tories have also been giving vendors cause for concern. Rishi Sunak’s comments in 2020 around ‘aligning CGT with income tax’, unsurprisingly led to a flood of sale mandates, many of which were going to market earlier than initially planned with less preparation. With vendors happy to take a hit on headline price, from not being fully prepared or selling at the right time, in order to avoid a potential doubling of CGT and a much worse net position. In the end there were no changes made to the current reliefs (all that fuss for nothing eh? Well… other than accelerated deal flow and tax receipts).

Tongue in cheek aside, the take-away: vendors need to carefully consider the tax implications which could impact their transaction and net proceeds. 

So, is now the best time to sell and maximise your ultimate value?

The five factors to consider when selling your media business will not produce a binary or exact answer. Indeed, the clients we work with often tend to be first-time, only-time sellers, selling their life’s work or family’s legacy. Therefore, every client, deal and individual circumstance is different and will have their own unique circumstances, value aspirations and timescale drivers. 

These five factors serve as a helpful guide and checkpoint for successful businesses, ambitious owners and quality management teams, focused on maximising their value, at any stage of their journey.

How we can help

We have extensive experience working with clients across the media sector and are committed to supporting businesses in the industry.

For further information, please contact Stephanie Wilson or Mandy Girder.