10 Reasons Why M&A Will Be Stronger in ‘09
Investment bank JEGI optimistic despite declining industry forecasts.
For the first time in the more than two decades Veronis Suhler Stevenson has been producing its annual Communications Industry Forecast, the private equity firm Monday issued a special "mid-term update,” revising its previous forecast of a 5.4 percent gain in overall media spend in 2009 to a 0.4 percent decline.
While the magazine industry waits to dig out from the global economic downturn, media investment bankers the Jordan, Edmiston Group maintained its optimistic tack yesterday, releasing the “Top 10 Reasons Why M&A Will Be Stronger in 2009.”
Here’s a look:
Diversified Media, Marketing and Technology Companies
1. Pruning the Portfolio: Diversified media companies are analyzing their portfolios and making decisions to trim non-core assets to strengthen operating performance, build cash reserves, and provide liquidity to make acquisitions of high-growth, core businesses.
2. The Re-Tooling Imperative: For diversified media and marketing companies. Pressure on core traditional businesses means retooling for digital is no longer an “extra credit” project, but an imperative, and they must look to acquire high-growth businesses.
3. Investing in the Value Chain: Technology companies are pushing to participate more in the media value chain—from content creation to distribution to optimization to monetization.
4. IPO Window Nailed Shut: Privately-held companies that hoped to tap the public markets as a way to provide liquidity for shareholders are finding the IPO option is currently non-existent. So, these companies are turning to M&A to gain shareholder liquidity.
5. Public Companies Going Private: There is pressure on public companies to go private, given low stock prices and valuations. Being a public company in current market conditions can be a distraction, and management needs to focus on running their businesses and strengthening their competitive positions.
Private Equity Firms
6. Pent-up Market Demand: Private equity capital overhang—swelling pools of private equity capital have begun to put pressure on PE firms to become more acquisitive and build their portfolios.
7. Dealing with Distressed Assets: Over-leveraged PE-backed companies are forced to sell assets, and/or recapitalize, to avoid bankruptcy.
8. Prime Time for Newer PE Firms: PE funds, especially those not distracted by legacy assets, see current buy-low market opportunities offering the perfect entry point to the media, information, marketing services and related technology markets.
Venture Capital Firms
9. Merge to Survive: Online media and advertising technology categories that were subject to “me too” venture investing are fragmented and ripe for consolidation.
10. Scarcity of Next-Round Funding: Given the lack of liquidity in the market, VC-backed businesses will have difficulty raising new rounds of investment capital and will instead need to find buyers.