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Can Diversification Actually Hurt Your M&A Upside?

Revenue and audience diversification are among the most critical operational moves that a media company can make. Not being overly reliant on any one platform or revenue source ensures that the business can thrive even during difficult times.

We’ve seen this play out over the last couple of years. Media companies that had both advertising and events were able to stomach the heavy macro uncertainty that hit digital advertising. Event revenue acted as a strong buoy despite ad revenue pulling back. On the inverse, for media companies that had made pure-play advertising their business model, last year and even the start of this year have been rougher despite benefiting immensely during the pandemic.

That’s why diversification is such a critical operational move. Getting money from partners and readers through different sources ensures that if one source falls away, you’re still able to operate. The same is true of audience acquisition. Over the last couple of months, there have been what appear to be seismic shifts in the search results, with forums and Reddit benefiting quite handsomely, much to the detriment of independent publishers.

And yet, while being diversified is a great business decision, it may not be the best financial decision when it comes time to sell the company. I spoke with three different operators about this, and in all three cases, there was some skepticism that buyers would want to buy diversified media businesses.

One b2b CEO chalked it up to Wall Street’s obsession with subscription revenue and its inability to value ad-based businesses. That opinion was shared by another CEO who told me that there were inherent fears tied to the ad markets, which has scared buyers away. At the same time, this second CEO told me that these same buyers were also discounting event revenue because of a Covid bump. “Maybe in 2022 and even in 2023,” this CEO said, “but the numbers in 2024 and even looking into 2025 don’t support that Covid theory.”

In both of these cases, this uncertainty tied to ad and events businesses is very much a private equity criticism. Since investors tend to operate in herds, it becomes easy for a belief to become law even if it’s inherently flawed. And so, while advertising as a revenue stream continues to grow every year and events are having some of their best years ever, prospective buyers are confused by them.

But it’s not just private equity buyers. A third individual who has been involved in numerous transactions opined on the difficulty for some strategic buyers to absorb diversified media companies: “If you’re a pure-play events business, you want to buy other events. You don’t really know what to do with everything else.”

In other words, if you know how to sell booths and event sponsorships, what are you going to do with an own-the-topic-powered lead generation campaign? Good luck! That’s why many media companies still have separate sales teams for events and digital (and don’t get me started on print ads).

And look, we can see this playing out with the massive Informa/TechTarget deal. Is it any wonder that the vast majority of Informa Tech’s digital assets are going over to TechTarget? Informa’s CEO, Stephen Carter, said when announcing the deal:

The most efficient way of driving to scale in b2b digital services is to run it as a pure play so that you have a scale dedicated business doing in digital services what you have in transaction-led live and on demand and content-led live and on demand. All of those businesses will share data; all of those businesses will be enhancing their products and services with digital enablement. But the provision of digital services to the end customer, that’ll be the provision of New Tech Target.

The business can operate more efficiently when Informa Tech is focused on its two different types of events, and TechTarget is focused on the digital side of things.

Then we look at Industry Dive, which is actually part of the Informa Tech / TechTarget merger. The business is the very definition of a pure-play digital business. At the time, you could look at Industry Dive and say that it was non-diversified. But I actually think it got around this by being diversified across so many industries. Are Retail Dive’s marketing partners going to behave the same way as Healthcare Dive’s? What about Waste Dive?

And so, in many respects, Industry Dive became the perfect example of diversification while satisfying the desires for a pure-play, highly optimized business. Is it any wonder it sold for such a pretty penny?

But when looking at all of this, what should operators actually do? I spoke with Jay Kirsch, a partner at mid-market bank, Oaklins Desilva+Philips, about this trend. Prior to joining, he had worked in senior executive roles at a number of b2b and b2c media companies. And he said:

There will always be specific investors and strategic buyers that have requirements in their M&A strategy that would make diversification less valuable. But for an executive growing a business these cases should not be central to their strategic plan. In my opinion, executives should not be building a business with a specific buyer in mind but rather on creating value more broadly. Some investors may have less interest in a particular asset because it is not a pure play but overall the value created by revenue diversification far outweighs the chance a particular buyer does not value it. 

I agree with this… While today, in 2024, revenue stream diversification might hold things back from an M&A perspective, from a business perspective, it is an incredibly important decision. And that’s true for the reason above, where you want to know there are multiple places that revenue is coming from. But second, it’s just the right move for the audience.

And I’ll use AMO as an example. Subscriptions are the best dollar I can get here. It’s dependable and predictable, and if I ever sell AMO, buyers will value those dollars the most. And yet, readers are looking for technology providers, so advertising makes a lot of sense. And the entire AMO community-publishers and vendors—are looking to convene, which is why we host the Summit. Along the way, AMO becomes increasingly diversified and can stomach sudden changes.

But just as importantly, the audience becomes more tightly engrained with my business. They read the newsletter, engage with the ads (hopefully), attend the events, and join the community. Every step further cements AMO's place in the media industry, and that’s something every publication should be trying to do for their audience—even if it makes M&A harder down the line.

People love to advocate for launching apps for media companies. And when they do, the outcome is that no one uses them. And so, I’ve long been opposed to creating them. There’s simply no utility for it.

Yet, according to an AMO story by Esther Kezis Thorpe, the Baltimore Banner has seen major success from its app, especially as a retention tool. She spoke with Eric Ulken, the brand's VP of Product Management.

Of the Banner’s 44,000 paying subscribers, Ulken said that around half have downloaded the app. Although that’s an impressive figure, it’s a number they are actively trying to grow. “There is a distinct correlation between app usage and retention,” he noted. “The app users retain at a significantly higher rate than people and subscribers who have not signed into the app.”

The brand’s focus is getting more subscribers to download it because, as Ulken said, “If we can get a subscriber to download and use the app, we feel like we can serve them much more effectively there than we can on the web.”

Read the full story here, exclusively for AMO Pro members.

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