Any way you slice it, $4 billion is a lot of cheddar. But is it cheddar well spent?
It’s been five years since the Walt Disney Company bought Marvel for $4 billion. In the immediate, the Internet showed its ability to put mouse ears on the Hulk at every freakin’ blog ever. In the longer term, Disney has watched its investment pay back in strange and prosperous ways.
Prior to the fateful day of August 31, 2009, the fledgling “Marvel Studios” had two certifiable hits under its belt: 2008’s The Incredible Hulk with $263 million worth of box office, and 2009’s Iron Man at $586 mil (all numbers worldwide estimates via via BoxOfficeMojo.com).
Since the buyout, the numbers are staggering - over $8.5 billion dollars in global box with surprises like Guardians of the Galaxy (who knew?) grossing $774 mil. And Marvel has no less than 10 more Marvel Cinematic feature films planned through 2019. And oh, yeah—over on the animated side, Big Hero 6 is now at $652 million and counting. Not to mention the revenue from the Spider-Man, X-Men and Fantastic Four licenses. And then there’s publishing, TV production, licensing, and the ever-popular so on and so on.
But those numbers are all grosses, with net profits more difficult to suss out. And $4 billion is, well, $4 billion. For that money, you could get (sure, let’s go there) 856,531,049 Big Macs, or two Los Angeles Clippers—double your Blake Griffins, double your fun.
So the question becomes: With five-plus years worth of rear-view-mirror time, was it $4 billion well spent? And if the transaction had never happened, what would a freestanding Marvel be “worth” today?
WELCOME TO EBITDA
This is not trading comic books or discussing if the Hulk could beat up Thor. This is biggie-boy pants stuff. And in the belt-and-suspenders world that holds up those biggie-boy pants, EBITDA runs the show.
EBITDA, simply put, is Earnings Before Interest, Tax, Depreciation and Amortization. It’s a crude measure of how much money a company is making, what its profitability is, and how it might be expected to continue to perform, provided market conditions stay stable.
John Holbeck is a senior vice president of finance at Merrill Corporation, a financial services and marketing company. He says that when high-value transactions take place, EBITDA, and then the all-important multiple of EBITDA, are calculated. Looking back, Holbeck’s best guess is that Disney paid 10 times EBITDA to get Marvel.
“This is a high multiple,” Holbeck says. “Most non-start up businesses bought and sold are in the 4 to 6 multiple range. But high growth or high synergistic companies can warrant a higher multiple.”
Marvel was certainly in growth mode at the time of the purchase, and the business models of Marvel and Disney—own a character, make a movie, put it on a T-shirt and a backpack—are naturally synergistic. There’s also the fact that, well, Disney had the money to spend.
“Disney had a war chest of cash,” Holbeck says. “The $4 billion they paid for Marvel was only about 6% of their enterprise value, and minimal risk. Also, with all the characters Marvel has, there’s significant intellectual property that is justified in a larger multiple.”
WHAT INTELLECTUAL PROPERTY IS ‘WORTH’
Ah, the IP. For years and years, the boilerplate in all of Marvel’s press releases boasted a “library of over 5000 characters” (now 8000!), and the tacit understanding that they were the 800-pound gorilla in boys’ marketing. When Disney bought Marvel, they bought half the world. They already had the other half.
“I think it was [Disney CEO] Bob Iger’s masterstroke,” says Tom DeSanto. “The one thing that Disney was lacking was a big footprint in boys’ merchandising. They had girls with the Disney princesses, so this gave them the other half.”
DeSanto has been a writer and/or producer on the highly successful X-Men and Transformers movies, so he knows this end of the business well. He also thinks Disney’s purchase of Marvel has already paid off.
“They were able to, I think, almost get the company for free,” DeSanto says. “By that, I mean, they paid for the company, and with Avengers and all the box office and DVD and licensing and merchandising, their investment was basically paid back. They were in profit mode already. And now they own these characters in perpetuity.”
There's certainly gold in those Avengers hills. DeSanto thinks that once Disney released Avengers, Iron Man 3, and the Thor and Captain America sequels, the acquisition was essentially paid for.
And Holbeck points out that for as long as Marvel superheroes remain all the rage in the public consciousness, the effect will keep paying off.
“Assuming that that there will be sequels, Avengers almost becomes an ‘annuity’ and almost pays for the $4 billion purchase price alone,” he says.
THE VALUE WITHIN VALUE
An asset is worth something. An asset in the right hands could be worth something more. Disney’s purchase of Marvel seems to be the perfect storm of the right buyer increasing that purchase’s value.
Alec Peters is an entrepreneur who has started, built, and sold companies since 1993. He’s also a self-described “lifelong geek, but one who’s always had an interest and fascination with the business side of all things geek.” He currently owns and operates Propworx, the movie prop auction site, and recently founded Ares Studios. He thinks Disney’s purchase of Marvel is just one link in a chain.
“I think Bob Iger is a genius,” Peters says. “When he took over Disney, the other premium assets in entertainment were Pixar, Lucasfilm, and Marvel. And look at what he’s bought in the last 10 years. Iger’s play for these three companies was brilliant. You can’t look at Marvel as just Marvel. You have to look at all three of these together, and how this solidifies Disney as the absolute brand in entertainment.”
And Peters thinks Disney got a deal.
“I might be naïve here, but I think $4 billion is cheap,” he says. “Bob Iger probably knew the potential of Marvel even better than Marvel knew its own potential. He knows the entertainment industry better than anyone. Knowing your industry is critical when valuing these assets. There are people who know when to pay a premium. They might know that the book value is X, but they’ll pay one-and-a-half times X because they know what the asset’s value is to them, to Disney as an entertainment leader. And Bob Iger can probably eyeball that.”
DeSanto agrees, and thinks the people, not just the IP involved, also provide some of the value.
“If you get people to understand both simplicity for the masses and feeding the fanboy at the same time, you’re golden,” DeSanto says. “And [Marvel Studios President] Kevin Feige gets that. Not to pat ourselves on the back too much, but Kevin cut his teeth on the first X-Men movie, where we established the Stan Lee cameo, we established that the last scene in the first movie is the first scene in the next movie and so on. All those things set them template for Marvel’s success, and Kevin has done a brilliant job in managing that and extending that.”
In the interim since purchase, Disney has seen a highly profitable Avengers sequel, and a continued tightening of the threads that weave together the Marvel Cinematic Universe. The bottom line impact is apparent.
“Considering both the Avengers economics and that Disney’s five-year Enterprise Value [a measure of a company’s total value] has grown nearly 20%, it appears the $4 billion purchase was justified,” says John Holbeck.
DeSanto thinks it’s justified, and them some.
“I think Marvel is worth the  Pixar price of $9 billion,” He says. “I think if Marvel had stayed its own company and went to Wall Street and got the money, yeah, they could do their own theme parks now. They could be a competitor to Disney. But Disney was masterful. They not only took a competitor off the playing field, but added that competitor to their own deck. And they’ve done it again with Star Wars. This shows me that Disney just ‘gets it’ much more than the other studios get it.”
DeSanto is happy for that. And not just for fanboy reasons.
“I’m glad,” he says, “because I’m a stockholder.”