Financial Crisis, Ad Slowdown Hit Media Mergers: M&A Proves MIA

Even before the official meltdown of the U.S. investment and commercial banking industries, the combined effects of an advertising slowdown, coupled with underlying issues in the banking and debt marketplaces, contributed to a pronounced slowdown in what to date has been an expanding marketplace for media related mergers and acquisitions. The overall market tracked by one leading industry investment banker found that the transaction value of media industry deals through the first nine months of 2008 is down nearly 70% from the same period in 2007, though the number of deals has actually grown some.

"Banking and debt market upheaval and an incipient pullback in advertising spending have led to an overall slowdown in M&A," disclosed investment banker Jordan, Edmiston Group Inc., in a third quarter report released late Thursday. "However, mid-sized and smaller transactions, particularly in growth sectors, such as online media, interactive marketing services and database information, have kept pace with 2007."

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While the actual number of deals crept up by nearly 3% year-over-year, JEGI said "billion dollar-plus leverage transactions have largely gone on hold" as strategic investors focus on smaller opportunities. "These transactions are being funded directly off their balance sheets, and do not require external financing," the report noted.

While digital media transactions continued to be a sweet spot in the deals marketplace during the first nine months, even they began to slowdown by JEGI's estimates. "Online media and technology" merger were down 7% in transaction volume and 6% in the number of deals from the first three quarters of 2007, and "marketing and interactive services" deals fell 64%, though the number of such transactions rose 13% during the period.

The findings comes before an even more serious lending and liquidity crisis hit the nation's largest banks, and pundits already are weighing in on the implications for the seemingly invulnerable high-tech media ventures centers such as Silicon Valley and Silicon Alley. On Thursday, a report in The New York Times reported that it no longer is a question of "if, but when" the crisis would affect a slowdown of financing for the technology ventures industry.

1 comment about "Financial Crisis, Ad Slowdown Hit Media Mergers: M&A Proves MIA".
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  1. John Doyle from Peachtree Media Advisors, Inc., January 30, 2009 at 12:30 p.m.

    Here is the link (http://tinyurl.com/6wynvb) to the Peachtree Media Advisors, Inc. year-end report summarizing the M&A activity in the interactive and out-of-home media sectors in 2008.

    The highlights from online media M&A in 2008 are as follows:

    In 2008, there were 707 merger, acquisition and capital raise transactions in the online sector of media (92 more transactions than the 615 in 2007). The 707 online media deals were comprised of 348 capital raise transactions and 359 acquisitions.

    The $16.9 billion in reported deal value in 2008 represents a decrease of 62% from the $44.4 billion in reported M&A transaction value in 2007 for all of the U.S. online media sectors. The 2008 reported deal value by sector:
    o Consumer - $6.2 billion (36.7%);
    o Business – $4.8 billion (28.4%);
    o Mobile - $592 million (3.5%);
    o Enabling - $2.5 billion (14.6%); and
    o Commerce - $2.8 billion (16.7%).
    In 2008, $3.5 billion in reported deal value of venture capital flowed into all sectors of media, representing a 22% increase over the amount of reported $2.9 billion in capital raised in 2007. The Enabling category had the largest increase in the amount of capital raised attracting $892 million in 2008, which represents a 124% increase over the $398 million raised by the sector in 2007. The Mobile sector also saw significant gains in investment capital. The Mobile category raised $341 million in investment capital in 2008, representing a 488% increase over the $58 million raised by the sector in 2007.

    The top five sectors in terms of volume of transactions (not reported deal value) for equity raises in 2008 were as follows:
    o Video & Online Games – 59 capital raise transactions;
    o Social Networking – 57 capital raise transactions;
    o Web Applications/Enabling/IT – 47 capital raise transactions;
    o Mobile – 35 capital raise transactions; and
    o Blogging/User Generated – 27 capital raise transactions.

    Feel free to give me a call at anytime to discuss and have an excellent New Year!

    Best,

    John

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