The phrase "red-hot" is on the lips of media bankers again. According to New York-based Jordan Edmiston Group, Inc., which tracks deals across 11 media and information industry sectors, M&A activity is up in first quarter 2006 over same period last year. The number of deals has increased eight percent to 168 with deal value leaping 35 percent to $14.6 billion. And private equity will play an increasingly larger role this year.
Last year was already a banner year, almost doubling 2004 deal value levels and, according to JEGI, 2006 will likely continue the pace. "All indications are that it’s heading in that direction," says Adam Gross, vice president marketing and communications at JEGI. "The 35 percent value increase, our pipeline of deal activity, what we see in the general economy and the media industry are all heading in the right direction. This is at least through 2006 and very potentially into 2007 and beyond. There’s nothing extraordinarily negative in sight."
While overall deal activity is strong, B-to-b and consumer magazines, conferences, and online media have seen mixed results over Q1 2005 levels. The number of b-to-b deals fell 43 percent, value is down 67 percent; consumer deals are up 27 percent with a value decline of 95 percent; conferences are up 27 percent with value up 70 percent; and online media is already up 54 percent but with a 13 percent decrease in value.
In related news, trade show valuations held their own in March after two months of decline, and the mood of the conference industry was mixed at the Society of Independent Show Organizers CEO Summit in Charlotte earlier this week, according to Nick Curci, publisher of the monthly newsletter Csmergers.com M&A Alert.
The latest information suggests the VNU deal will likely go through in the next month or so as the selling shareholders work out their issues relating to the sale. Reed Exhibitions has not yet secured a buyer for its manufacturing events and it appears as if they will not be closing a deal for a while.
Private equity firms will likely remain highly competitive with strategics this year due to their high liquidity and generous bank financing (see chart below for 2005 private equity action).
"In 2005, approximately 25 percent of the deals that were completed had a private equity firm as a buyer," says Gross. "From all indications this year [strategic and private equity] are both very active in the market. But I wouldn’t be surprised if private equity buyers are involved in a third to a half. Banks are lending at multiples that allow private equity to be very competitive with the strategics. Their financial formula works at higher multiple levels."
Private equity firms were buyers on 120 deals in the media and information industries in 2005, or 24 percent of the total deals completed for the year, representing a 50 percent increase over 2004. Activity for the first quarter 2006 indicates private equity will likely be representing a third to half of M&A deals for the year.