Dow Jones has announced the acquisition of MarketWatch for $519 million. Dow Jones was one of a number of players in the running, including the New York Times, Viacom, Yahoo!, and Pearson.
Outsell's Chuck Richard notes that MarketWatch’s earnings before interest, taxes, depreciation, and amortization (EBITDA) is so low – the company is in effect still emerging from start-up mode – that evaluating the purchase price in terms of operating income multiples is fairly futile. The purchase price of $519 million, even adjusted for $56 million in cash and $46 million in tax breaks, yields an adjusted price of $417 million, 60 times the EBITDA. That’s well out of the range of typical 8-12x multiples for mature businesses. Even as a multiple of revenue, at $519 million MarketWatch is still in the 5.2x (adjusted revenue) to 6.5x (full revenue) multiple range.
The bottom line is that MarketWatch benefited from a very successful auction among a number of buyers with good reasons to bid. The auction drove the price up to top-end ranges, showing Dow Jones’s sense of urgency to grow its advertising revenue and expand its user base beyond the 701,000 paid subscribers at WSJ.com. Ultimately this deal says more about Dow Jones and its needs than it says about MarketWatch.
Viacom had the win-win position here. By pushing up the purchase price in the auction process, the value of its ownership shares increased. Had they won the bid, it would likely have been a win, too, given the success of MarketWatch.
