• by Erik Sass  @eriksass1, November 29, 2006

The hot and heavy merger and acquisition activity that has been reshaping the media industry for much of 2006 will continue into 2007 and beyond, according to investment banking and venture-capital executives speaking at the Digital Magazine Forum Tuesday afternoon. As before, the main players will include "traditional" media companies, established and new online companies, and aggressive venture-capital and private equity investors.

Jay MacDonald, a partner in digital media and technology for DeSilva + Phillips LLC, an investment-banking firm, began with the broad view. "We've had a strong economy, low unemployment, and GDP growing about 3.2%," he said, predicting that these factors will continue into 2007. MacDonald added that companies that want to borrow will continue to enjoy relatively inexpensive debt financing.

In this friendly environment, individual players also have strong reasons to initiate or continue M&A and investment activity, MacDonald added. While 2006 was marked by big traditional media companies pursuing "transformational strategies," those transformations are hardly complete. The pressure to continue adapting and growing will be especially strong on publicly traded companies.

"They're not going to get that bump in their stock price showing 3%-4% growth," according to MacDonald. "They're going to have to make some acquisitions." MacDonald added that one of the main online drivers of M&A in 2007 will be the proliferation of mobile devices capable of supporting local search and click-to-call functions. While the U.S. hasn't caught up yet with Europe and Asia in this area, MacDonald said he expects it will over the next few years.

Representing venture-capital firms, Toni Schneider, a venture partner in True Ventures, said that venture-capital investment will also continue at a fast pace, but emphasized that the period in which investors poured money into new, untested start-ups is over.

Instead, he said venture-capital managers are looking for companies that need "many small investments to tweak an organization that's already got it figured out." Companies that attract investment will be decentralized, using open-source technology and distributed workforces, according to Schneider: "We want entrepreneurs who are extremely efficient in the way they spend their money."