About "zombie companies" and raising dough for DOOH

October 8, 2009 by Dave Haynes



I did not have the time to attend as much of the Strategy Institute event in NYC this week as planned, but what I did get to was pretty good, and Ken Sonenclar was, to me, the highlight.

He is Managing Director at the NY-based media investment bank DeSilva + Phillips and he spoke about positioning DOOH companies for valuation. He was crisp, down to earth and direct, and while having a finance background was probably helpful for anyone listening, even knuckle-draggers like me could get a grasp of what he had to say.

His company has done about 200 deals in traditional and digital media since 1996, with a value of about $8 billion. They buy, sell and put values on media entities.

Not surprisingly, Sonenclar described a wobbly current landscape that has seen M&A deal volume drop by two thirds. While things are getting better out there, there are fundamental problems in the marketplace that are not going away anytime soon. He noted there is about $220 billion in leveraged loans that are going to mature over the next five years and there are big questions as to whether many of the companies on the hook to pay off will even be around. “These are towers of loans that are going to fall over sideways.”

He described the current media investment market as a supply and demand market and how valuations for companies are dropping because money is a lot harder to come by. Therefore, companies looking for it need to give up a lot more equity to get it. Senior debt — loans from banks – is really hard to come by now.

The IPO market is all but dormant at the moment.

Sonenclar also said there all kinds of “zombie companies” out there that are dead but don’t even know it. They continue to exist because they haven’t burned through their cash reserves yet, but they will, and there’s no future for them.

But it wasn’t all bad news. There are signs the technology market is picking up and deals are getting done, like Cisco buying Tandberg recently.

And there are strategic buyers out there, who are looking for these sorts of things:

Sonenclar also has suggestions on how companies need to position themselves:
  • there should be barriers to entry for competitors (so what you have can’t just be copied or exceeded);
  • you should have multiple recurring revenue streams;
  • a deep and diverse client list;
  • a smart, rounded management team (not just one really sharp cookie and some functionaries);
  • demonstrated earnings growth (EBITDA).
He also suggested companies looking for money need to understand the buy versus build equation. It boils down to an investor looking at an interesting business and wondering whether for the buy price he or she could just use that money and replicate that business and have full ownership and control.
Good session. I saw some Wall Street people earlier in the day who pretty much talked over and through many in the audience, and thumbed away at their BlackBerries when not up. But this guy understood the space and was engaged and interested. I learned stuff, which is the point.

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