Media M&A activity picks up as cost of debt remains low
Corporate cash reserves, desire to realign portfolio to fit today’s ad environment, strong equity markets, among the reasons for increased M&A activity
The mergers and acquisitions market picked up a little momentum in 2014 and this year is beginning with yet more deals being announced. The “big one” is soon to be announced – Digital First Media – but plenty of small deals have occurred recently, as well.
Large transactions often have their own set of reasons for being completed, and many are led by private equity firms swooping in to take advantage of the distress of another PE and the mismanagement that often is experienced with PE oversight (if you believe I’m down on PEs, you’re right).
But putting one single reason behind increased M&A activity is probably a bad idea, though higher activity generally is seen as a good sign for the industry overall as new owners come in, old owners consolidate or expand holdings, bad owners exit the market.
Outsell, which produced a report for the M&A firm The Jordan Edmiston Group, listed the key drivers of the M&A surge the record levels of corporate cash, strong equity markets, open debt markets, as well as other reasons that are driving transactions in other areas.
With smaller publishers, the continuing low interest rates we are seeing is no doubt fueling some of the activity. Although rates have been low for a few years now, uncertainty with the economy, and especially with advertising has made many owners reluctant to consider expanding their businesses through acquisitions. But advertising, for many, has stabilized, and last year’s election cycle (and the vast amounts of money now flowing into politics) led to many newspapers reporting somewhat better ad performance.
Most papers, of course, are not experiencing an ad boom, far from it, but neither are they experiencing a crash. But in a more stable environment owners can contemplate and plan for an acquisition, then take on some debt to make it happen.
The magazine market, too, is seeing growth in M&A. In Canada, last year’s big deal by Quebecor backed TVA Group to acquire the magazines of Transcontinental was just cleared by the Competition Bureau.
My guess is that smart magazine publishers will be evaluating their titles and seeing whether they fit the current market. As one magazine exec told me, “there was once advantages to owning two big titles in two different markets, as it attracted two different kinds of advertisers. But today, with much of the advertising going digital, ad buyers are looking for total reach across titles in the same demographic. It may make more sense to own two somewhat smaller titles that can appeal to the same advertiser, than one old legacy title that only targets the same demo.”