While Federal Reserve Chairman Ben Bernanke sees a reasonable chance
that the U.S. will kick the recession in 2009, boutique media bank
Jordan, Edmiston Group Inc. has come up with a list of 10 reasons that there will be more media and information industry M&A this year than you might expect.
"There are strong secular reasons why M&A will continue this year, stronger than probably most people expect," says Tolman Geffs, a managing director with JEGI.
He points to deals such as Internet content delivery company Akamai Technologies Inc.'s (AKAM) $95 million purchase of online marketing analytics outfit Acerno Inc. last year as an example of what to expect.
"That's one of our themes," Geffs said, "companies retooling to take advantage of higher growth markets."
Media, marketing and technology companies need to trim tangential assets and "retool" their traditional businesses to perform better in the digital realm, which is "no longer an 'extra credit' project," JEGI said in a report. The lack of an IPO market might also push private firms towards M&A, among other factors.
"Most diversified media companies are looking hard at user engagement," Geffs said. "User engagement" include sites or other online tools that are integrated into business subscribers' workflow, or that get consumers involved in creating and marketing content.
There are reasons for private equity firms to make deals as well, as portfolio companies with too much debt might have to sell assets.
JEGI also expects some industries that attracted venture capital funding to consolidate.
"There are categories where VCs have backed third, fourth and fifth entrants. Especially in a tough market you see an acceleration of the normal winnowing process," Geffs said.
Ad networks are an example.
"You've got other sectors such as video-sharing sites where frankly it's more of a winner-takes-all-losers-die environment," he said, "whereas in ad networks, if you've got profitable distribution, that asset has value."
Deflated stock values make it less appealing to use equity as currency, but tech and cable companies in particular could have cash to fuel deals.
"Corporate America, by and large, has strong balance sheets, the financial companies excepted," Geffs said.
Companies such as Microsoft Corp. (MSFT), Adobe Systems Inc. (NASDAQ:NADB) and Comcast Corp. (CMCSA) have "very strong cash balances and cash flows" they could put to use. - Chris Nolter
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