The news of the purchase of a majority stake in MyCode by Ariel Alternatives valuing the company at US $400 million, triggers interesting thoughts on the value of minority ownership and the overall state and valuation of media and ad-tech companies involved in multicultural marketing. Why is Univision’s valuation so low? Is there a minority-owned valuation premium? Let’s analyze…
MyCode’s Acquisition: A Play on the Growth of Marketing Investment in Minority-Owned Media
Ariel Alternatives’s purchase of MyCode is a play on the growth of corporate America’s demand for media and marketing services provided by minority-owned businesses. First of all, by being purchased by Ariel Alternatives, MyCode fulfills the minority ownership requirement as Ariel Alternatives is, according to the announcement, “the first private equity subsidiary of global asset manager Ariel Investments, LLC (“Ariel”), the first African American-owned mutual fund.” The announcement further specifies that “in the long term, Project Black intends to transform portfolio companies like My Code into certified minority business enterprises (MBEs) and position them as leading suppliers to Fortune 500 companies, fueling greater business diversity across the United States and beyond. In the near term, My Code expects to: Leverage Project Black’s capital to invest in growth initiatives, and benefit from Project Black’s CPO Council, a group of Fortune 500 Chief Procurement Officers that provides data on supplier demand across sectors. The Council’s insights, among others from Ariel’s vast procurement network, will aid the investment team as it provides My Code with potential client introductions.”
In the long term, Project Black intends to transform portfolio companies like My Code into certified minority business enterprises (MBEs).
Minority Ownership: Does it Deserve a High Valuation Multiple?
Through information conveyed in a recent press release, we know that My Code grew by 287% between 2020 and 2023. Assuming a sales revenue of US $25 million in 2020, this puts 2023 expected revenue at US $95.75 million. Per last week’s announcement of the transaction valuing MyCode at US$ 400 million, the company price/sales multiple (assuming no debt), liest at 4.2.
Is this a high valuation (sales multiple) compared to the valuation of other digital media companies? Let’s first of all say that the dealmaking environment continues to feel the effects of the highest interest rates since 2001. High interest rates hurt company prices (valuations). In addition, 2023 has not been a good year for the advertising-driven media sector with companies including Vox Media, Univision and Buzzfeed announcing layoffs. Just today Spotify announced that it is laying off 17% of its workforce or 1,500 employees, its third round of layoffs this year.
Like MyCode, Perion Network, the former Undertone, is a company active in the digital media buying space. At the end of Q3 it had a market cap of US $1.528 billion, a multiple of 3.3. vs. a 2023 expected revenue of US $314 million. At US$8.36 million, Perion’s current debt is relatively low. According to Luma Partners, Perion is the most profitable company in its cohort with 54% 2023E EBITDA margins. Perion Networks is a highly profitable publicly quoted company (NASDAQ), and it has a substantially larger revenue than MyCode, yet its valuation is significantly lower than MyCode’s; 3.3 times sales compared to 4.2. This difference implies that minority ownership and the prospects of Corporate America increasing its investment in minority-owned media currently amount to a sizable valuation premium.
Perion Networks is a highly profitable publicly quoted digital media company. It has a substantially larger revenue base than MyCode, yet its valuation is significantly lower than MyCode’s; 3.3 times sales compared to 4.2.
Of course, minority ownership is not the only factor driving valuation. Digital media is still a growth sector compared to other parts of the media space. Mexico City-based media conglomerate Televisa, the owner of Univision, is largely a legacy media company. It has a substantial digital media footprint but is nowhere near to be a digital media pure play. Televisa currently trades at a price/sales multiple of 0.45 (with 2022 revenues of US $4.4 billion).
Minority Ownership: Is Canela Media Next?
In the African-American media realm, there are a good amount of African-American-owned companies, e.g. Allen Media, but not that many in the Hispanic market. One of the few is Canela Media, which in February 2022 became one of the largest funded Latino-owned companies. Industry observers note that Canela Media’s 2023 revenues are expected to be in the area of US $100 million, which at current sales multiples for minority-owned media companies would put their valuation at approximately US $400 million. Will Canela Media be sold in 2024? Portada bets that it will.
Will Canela Media be sold in 2024? Portada bets that it will.
What is the Expected Size of Marketing Investment in Minority-Owned Media?
Ultimately, what justifies investment interest and high valuation multiples in minority-owned media companies are the growth prospects of advertising investments in media and marketing companies with minority ownership. The table below shows the expected evolution of overall multicultural advertising investment until 2027.
| Evolution and Growth of Multicultural Advertising Investment | 2019 | 2020 | 2021 | 2022 | 2023E | 2024E | 2025E | 2026E | 2027E |
|---|---|---|---|---|---|---|---|---|---|
| Total | 9.27 | 10.04 | 10.87 | 12.08 | 13.11 | 14.24 | 15.03 | 15.87 | 16.51 |
| Growth YoY | 8.38% | 8.22% | 11.15% | 8.52% | 8.57% | 5.60% | 5.60% | 4.01% |
Note: Multicultural advertising is defined as advertising specifically targeting the three largest multicultural segments: U.S. Hispanic, African American, and Asian American. In billion dollars.
Source: Portada Insights Report Marketing in Multicultural America: 2023 – 2026
From 2020 to 2022, multicultural advertising grew at a very high rate in large part due to the strong positive impact the Black Lives Matter movement had on corporations’ overall DE&I investments and in diverse media buys specifically. Investment in African-American properties, in particular, grew at an extremely high rate (check the table below). Over the next 5 years, Portada expects the market to continue to grow above the overall U.S. advertising market growth rate, driven by the growth of minority-owned media investment and the overall business case for marketing to young and growing multicultural audiences.
If out of the expected US $16.51 billion in multicultural media investment in 2027, 5% is invested in minority-owned media (check out GroupM’s Gonzalo del Fa’s opt out formula for minority-owned media investment), we obtain US $826 million specifically channeled through minority-owned media in 2027. Assuming a 1:1 relationship between media spending in minority-owned properties with other nonmedia-related marketing services, we get an overall spend in minority-owned marketing and media companies of approximately US$ 1.6 billion in 2027. Of course, minority-owned media/marketing companies can and will also attract business that is not related to DE&I objectives, and that can make the market for players like MyCode, Canela Media, and others substantially larger.
| Breakdown of Advertising Expenditures in African American, Asia American and Hispanic directed advertising. | 2019 | 2020 | 2021 | 2022 | 2023E | 2024E | 2025E | 2026E | 2027E |
|---|---|---|---|---|---|---|---|---|---|
| African-American | 2.4 | 3.05 | 3.66 | 4.11 | 4.46 | 4.79 | 4.98 | 5.17 | 5.28 |
| Asian American | 0.768 | 0.81 | 0.9 | 0.99 | 1.09 | 1.19 | 1.26 | 1.33 | 1.37 |
| Hispanic | 6.1 | 6.18 | 6.31 | 6.98 | 7.57 | 8.25 | 8.8 | 9.37 | 9.86 |
| Total | 9.268 | 10.04 | 10.87 | 12.08 | 13.11 | 14.24 | 15.03 | 15.87 | 16.51 |
Note: In US $ billion
Source: Portada Insights Report Marketing in Multicultural America: 2023 – 2026
Are we in a Minority Owned Media Bubble?
The jury is out on whether minority ownership will continue to be this important. After all, Diversity Equity & Inclusion goes far beyond investment in minority-owned media companies. Most media buying agencies see minority ownership as just one of the factors to take into account. When it comes to budgeting advertising to engage diverse-owned audiences, media agency UM has a two-pronged approach, first, it establishes how much a particular brand should spend towards diverse audiences overall (looking at a variety of target audience-related factors) and, second, how much should be spent to support diverse-owned properties. Let’s not forget, that media properties may not be minority-owned and cater to a massive and diverse audience (e.g. Univision, Telemundo, or Pandora).
Therefore, minority ownership of a media company can’t be the be-all and end-all of diverse audience-driven media buys. As Arnetta Whiteside, SVP, Multicultural at Publicis Media stated on pages 21 and 22 of our Marketing in Multicultural America 2023-2026 Insights Report, for the long-term health of the market, it is important that all relevant players clearly understand hyped terms and expressions, including “Purpose-Driven Brand,” “Cause Marketing,” “Diversity, Equity and Inclusion,” “Inclusive CultureFirst Marketing,” and “Marketing during Cultural Moments” and “Minority Ownership”.