HOLLYWOOD, Fla. - Adult-company owners historically have faced a vague market when trying to sell or exit their businesses. However, new markets have opened as the mainstream's financial interest in the adult industry continues to grow.
Is it possible for companies in the adult-entertainment industry to position themselves as candidates for a profitable sale or recapitalization? Are there ways to access public markets? The Internext seminar "Capitalizing Your Success" brought together investment-banking professionals and major adult-company owners who have participated in capitalization transactions to discuss adult industry-specific solutions with moderator Connor Young, president of the YNOT Network.
It's important to recognize certain issues when trying to make money in a merger with or sale to a mainstream company, the panel said, and every detail in the accounting, pitch and brand must be in order.
"It's difficult to get sponsors who are interested in investing with adult [companies]," said Holt Gardner, a partner at Ackrell Capital. "Deals are harder to find in core demographics. You have to be gutsy and cutting-edge, and you have to have a very smart strategic plan. You can't get through the door without having every order of your business organized and in total compliance with your investors. One of the most important facets is making sure you have the right team of accountants, lawyers and bookkeepers. Be proactive, dismiss concerns, get your pitch down, have a brand and make sure your books are clean. One mistake, and you're finished."
"Don't take something to investors you know will be unpalatable for them," said Jay Grdina, president of Club Jenna Inc. "Listen to advisors and talk to peers. Re-brand your company to make it acceptable if you must, but do it from scratch; don't just change gears in the middle to try and capture monies. When branding, target specific areas that are within your control, i.e., certain articles, PRs and avenues that you can put a positive spin on. Know your market, know how to sell it, look at your target audience and be concise. You must be flawless. Know that if it deals with adult and you are trying to pitch it to mainstream, it will be a tough sell. Adult will always be taboo, but we have to stay edgy."
According to Tim Valenti, co-founder and chief executive officer of NakedSword, mergers within the adult industry also are viable. NakedSword's merger with AEBN took several years of preparation and more than a few attempts to find the right partner, Valenti said, but a detailed business plan helped lay the groundwork for it to be mutually beneficial. "We knew what our strengths were, and we knew we needed to find a partner that had the right distribution channels," Valenti said. "We took a whole year to construct the deal because we wanted to make sure our visions matched, our cultural issues were the same and we were clear on what were our goals were."
NakedSword had an existing brand name and established gay video-on-demand (VOD). AEBN had the distribution muscle, but no real brand.
"We waited until our brand was better known [and] had more members and prototypes for things we wanted to build," Valenti said. "That's when we knew it was time to bring AEBN into the mix; we need each other."
Gardner said certain business models are more attractive to the mainstream, such as VOD, pay sites and anything with recognizable growth potential.
"Mainstream models should include a clear plan for distributing content to consumers," he said. "All your ducks have to be in a row, and all the paperwork absolutely has to be in order. You need to identify who would be the best partner to get you where you need to be. Preparedness is everything. We usually spend three to six months getting into the depth of the model to make sure we're absolutely consistent on everything. It is an illuminating experience for managers, but they come out with a better understanding of the company."
The panel agreed that companies looking to sell should start by coming up with a strategy. Put together a plan and have an idea about where the company will be years down the road, the panelists advised.
Valenti urged companies to look at what they need to do in order to build a brand or business. "Before a company can look for an exit, work on what your content is," he said. "We found ways to differentiate ourselves and focused on ways to develop our product."
Make the company real, even if you want to sell, the panelists advised. They also suggested setting up a good business model, getting used to practicing good business and building a strong staff. They said a company has to be legitimate to be attractive to potential buyers, who look for existing problems and may quickly lose interest after spotting them.
"Hire good advisors if you want to go mainstream," Gardner said. "Don't try to project growth that isn't there. Be realistic. They know the business. They know what's achievable."