• by Erik Sass  @eriksass1, January 29, 2007

An annual survey of chief executives at fast-growing private companies by PricewaterhouseCoopers revealed a general expectation of increasing merger-and-acquisition activity over the next three years. Although the report did not address the media sector specifically, the frenetic pace of M&A activity among media companies in 2006 suggests that the prediction applies to them, too.

PricewaterhouseCoopers surveyed 286 CEOs, and found that 38% planned an acquisition sometime in the next three years, as opposed to just 20% who completed an acquisition in the last three years.

An additional 28% said they planned to sell part or all of their company. All the companies surveyed had revenues between $5 million and $150 million--the range inhabited by most Internet ad and media agencies.

Overall, the companies planning to participate in M&A activity were among the country's fastest-growing--with revenue, on average, increasing 313% over the last five years. Significantly, their CEOs forecast a somewhat lower average rate of revenue growth in the next 12 months--just 24.2%, which extrapolates to a 293% total growth rate over a five-year period.

Maintaining revenue growth is clearly a major motivation for continued M&A activity, with 82% of CEOs citing market-share expansion as their main objective.

Plans for M&A activity are also correlated with major capital investment, indicating a strong pool of demand for private-equity dollars. Sixty-one percent of the respondents planning to participate in M&A activity also plan to make major new investments, including expanding their workforce.

These results seem to correspond well with other recent predictions about M&A activity within the media industry in 2007.

In November, Jay MacDonald, a partner in digital media and technology for DeSilva + Phillips LLC, said media companies aren't "going to get that bump in their stock price showing 3%-4% growth. They're going to have to make some acquisitions."

While 2006 was marked by big traditional media companies pursuing "transformational strategies," those transformations aren't complete, said MacDonald. The pressure to continue adapting and growing will be especially strong on publicly traded companies. The PWC survey only included private companies.