Are Media M&A Reports Just a Bunch of Self-Serving Fluff?
Some say so, but banks say bigger picture goes beyond ailing traditional media.
Two of the media industry’s biggest investment banks/deal brokers put out reports in recent weeks, looking back at the mergers and acquisitions that have been announced over last six months. According to the report from Berkery Noyes—which was released this week and analyzes merger and acquisition activity of private equity companies in the Information Industry—while total aggregate transaction value decreased by 9 percent to $13.54 billion during the first six months compared to the second half last year, the total number of transactions (143) increased 22 percent.
The first half report from the Jordan, Edmiston Group—which tracks deal announcements across 10 media sectors and compared them to the same period in 2009—says media M&A is “heating up,” and that six of those 10 sectors showed “strong” growth over the first six months of the year.
Sounds like great news, especially after the media M&A market nearly dried up last year. But not everyone is buying the rosy picture painted by reports like these. “Do not believe some of these self-serving reports that the large industry investment bankers are releasing,” says one media M&A professional who wishes to remain anonymous. “They are just talking up their book and trying to generate some activity.”
“I don’t know how or why the M&A firms can say ‘life is great’ over and over again before it begins to wear thin,” another tells me.
Indeed, the traditional markets that many of these brokers serve—the sectors that magazine publishers have been serving in for years—are still on the decline (see JEGI’s by-sector chart here). “With very few exceptions, all trade show and trade magazine deals for the past two years has not been for strategic growth, but fire sale transactions,” says one M&A player. Other sub-markets, such as regional magazines, seem to still be constricted and tight and might not start to see an uptick until 2011.
Media Isn’t So Traditional Anymore
But the overall media market has changed pretty dramatically over the last few years, with the number of deals (and number of brokers serving those markets) growing much faster in emerging sectors than traditional consumer and b-to-b media. A number of brokers are shifting their focus away from traditional media in favor of those more active, profitable areas.
“While it is true that there have been some distressed sales and divestitures among the more traditional media sectors during the 2010 M&A upturn,” says JEGI COO Bill Hitzig, “consider this: of the nearly 450 transactions covered in our six-month report, the four most traditional media sectors (Newspapers, Consumer Magazines, B-to-B Media and Exhibitions & Conference) accounted for a mere 12 percent of the transactions and less than 8 percent of the transaction value. Take out the CanWest newspaper sale and that number drops to less than 3 percent.
“The real M&A story,” he continues, “is that larger strategic transactions are taking place in the growth sectors (namely Marketing & Interactive Services, Online Media & Technology and Database & Information Services), with both private equity and cash-rich strategics.”
Hitzig goes on to defend JEGI’s quarterly media M&A reports, saying the group “goes to great lengths” to provide an accurate and in-depth look at the market. “We track down deals from dozens of sources to present a thorough update in deal volume and value year-to-date,” he says. “As I said, our six-month report covered nearly 450 transactions, including ours, and the accompanying narrative talked up what is newsworthy, not what is self-serving.”
Berkery Noyes also responded. According to communications director Patrick Scanlan, the firm’s reports are data driven and drawn from a proprietary database, which is constantly updated and reviewed. The deals are “thoroughly vetted by our research department,” he says, and are coded to classify them into various spaces and segments.
"More importantly, BNC has released these Trend Reports throughout the market decline of the past two years, despite little in the way of good news to report,” he tells me. “True to this philosophy, our current reports look not only to the current half-year, but trends across several preceding years. These trends signify not a miraculous revitalization, but recovery, within certain segments of our covered industries. Had we intended to distort this pattern for our own benefit, we would have compared first half of 2009 to the first half of 2010, a juxtaposition that would have displayed a meteoric rise in M&A activity.”
But, after all, even if reports like these come off as boastful to some, then maybe that isn’t such a terrible thing right now. “After the last 18 months, I don’t even mind the bragging [by the larger investment bankers],” says another M&A player. “At least they are finding something to brag about.”