Ad Recovery Fuels Rebound In Magazine M&A Deals

After a four-year drought in mergers and acquisitions, a leading investment banker specializing in media deals predicts they will begin flowing shortly on the rising tide of a recovery in the ad market that accelerated growth in print spending.

A DeSilva & Phillips report--"Mergers & Acquisitions: An Insider's Guide to the Magazine Marketplace"--bases its optimism on the robust ad spending market that has seen 8.7 percent growth in print spending compared to 4.5 percent for broadcast through the first nine months of 2003, the most recent TNS Media Intelligence/CMR data available.

"We think that they're right--the print media are going to outperform the electronic media, the broadcast media, for a variety of reasons," said Sam Schulman, managing director of DeSilva & Phillips in New York City. He said the economy and pent-up demand, particularly in business-to-business advertising, would be factors.

The report predicts that when the recession is over, consumer magazines will have grown at the same rate as broadcast media, with newspapers growing faster.



The past few years have been pretty lean in the buying and selling of magazines, according DeSilva & Phillips. In 2000, there were 102 deals totaling $25 billion in volume. In 2003, that dribbled to 82 deals and a volume of $2.7 billion. It's not just the aggregate, either. The value of the biggest deals has also fallen, from $23.5 billion in 2000 (not including the titles involved in the Time Warner/AOL merger) to $2.46 billion in 2003.

But DeSilva & Phillips said that an improving ad market will drive media M&As in the new year, making conditions ripe for media companies that want to expand their holdings, as well as financial companies that have lots of money to invest. Big media companies that are buying or selling titles or smaller companies have traditionally been a large part of M&A activity, such as Primedia's recent sale of Seventeen to Hearst Corp. and American Baby to Meredith Corp. But a growing number of deals--80 percent in 2003-were done by private-equity firms or financial companies created for the purpose, such as New York Media Holdings, which bought New York Magazine from Primedia, and the business-to-business magazine unit that was purchased by Highline Media/Spire Capital Partners.

That doesn't mean that the media companies are going away. DeSilva & Phillips says that the lull in the market is largely due to the fact that the strategic media companies weren't able to buy or even sell in the past several years. It's also kept the size of the deals down.

"The problem was [in the past few years] that everyone thought it was a good time to buy during the last three years when it wasn't," said Schulman. "When prices are too low, sellers don't come into the market. So you had a lot of people looking for bargains, and some of those were simply able to wait out the recession for the most part. And now, they've got better results and they're going to come out."

The sellers will be led by the media companies, which will be bolstered by stronger advertising revenues that will allow them to pursue M&As. With interest rates down, it will be easier to borrow money and take less cash for the deals.

While DeSilva & Phillips has not made predictions about the size of the M&A market, Schulman says it could start returning to more normal levels soon. It may not reach the level of 2000, when the amount passed $25 billion.

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