Fire Sales Abound After the Crash
1. The recession and credit crisis that abruptly halted media deals in 2008 will yield mostly distress sales and
opportunity buys with lower prices and more rigid financing over the next 18 months. Essential media roll-ups and consolidations are mostly on hold - the casualty of ravaged financial institutions, a
three-month dearth of public offerings, and billions in sidelined private equity. Asset sales to raise liquidity are backlogged as buyers and financers either can't or won't budge in markets gone
amuck. President-elect Barack Obama and a Democratic-controlled Congress are charged with getting liquidity, deal-making and the overall economy back on track.
2. Would-be sellers run the
gamut from tech start-ups with investors looking to exit to drifting giants like Yahoo. Loan covenants and debt will force sales. Sumner Redstone, under pressure to pay a $1.6 billion loan, may sell
National Amusement assets to avoid parting with more Viacom and CBS collateralized stock. Sirius Satellite Radio's $1 billion merger debt is crushing. Free-falling stocks prevent companies from
trading with their own currency, and require values to be redrawn on lower earnings-growth projections. Financing is scarce and highly qualified.
3. Well-funded opportunistic buyers are
moving cautiously and ever so slowly, from corporations with war chests
(News Corp., Microsoft and Liberty Media), to foreign investors and sovereign wealth funds, to venture capital and
private-equity firms (of which there are fewer). Most players want to know the damage that will be incurred during an advertiser- and consumer-spending pullback expected to last through 2009.
4. The overriding question is, how low will valuations, revenue and earnings growth go? The answer is especially critical to companies whose recent mergers and acquisitions were predicated on
better times and higher metrics and who must now reconcile the difference. In the year since acquisition by News Corp., $500 million has been lost on Premiere and Dow Jones has become barely
profitable. Some Internet start-ups and smaller market broadcasters struggling with valuations could go belly up.
5. Strategic tuck-in acquisitions will abound. Viacom CEO Philippe Dauman
vows to steer clear of splashy purchases. He will continue to grow his company organically, with smaller "tuck-in" acquisitions like Harmonix, which produces MTV's Rock Band. Sister CBS's
$1.8 billion acquisition of CNET provides limited offset to the pure-play broadcaster's plummeting profits and revenues from its 70 percent advertising-dependent businesses.
6. Some major
media will change hands. General Electric may not be able to resist adding NBC Universal to the assets it is selling to ameliorate the deep damage inflicted by GE Capital. Lions Gate, MGM and Yahoo
are among other targeted buys.
7. Strategic alliances will be an important interim option before the revival of mergers and acquisitions under a more scrutinizing Democratic administration
and Congress. Yahoo insists it can best survive in a sideways merger with AOL rather than sell out to Microsoft, where a search partnership is still possible. No matter what, Google wins.
8. Inevitably, the mix and match of media, entertainment and Internet companies will redefine the competitive boundaries of the digital landscape. More conservative economics will play as much of a
role as digital technology in reshaping many sectors.
9. The Web purge will continue, creating a survival-of-the-fittest, with venture capitalists moving more judiciously and nurturing
winners longer. Some successful Internet players are even now receiving second and third rounds of funding. LinkedIn, a profitable professional social network, recently topped $70 million in funding.
Others, like Web publisher uber.com, Web video editor Eyespot and ad network JellyCloud have closed up shop for lack of funds.
10. Nearly recession-proof video games, fertile ground for
interactive advertising, may be the only full-price media deals for a while. Take-Two's rejection of a 64 percent premium bid from Electronic Arts is the poster child for the 2008 deals that should
have been. Apple may be among the new video game players.