Media Business: How does the second half look for b-to-b media M&A and why?
It seems to be slightly improved because companies are continuing to adjust their portfolios to reflect the market. As a result, there are some assets being sold off, and there are buyers for those assets. These are not major deals. Measuring against the last five years, these are small deals. Some financing is there through selected resources with minimal leverage—nothing like it was before. So there's a glimmer of positiveness in the marketplace, and we are hopeful for next year.
MB: Do you foresee a genuine thawing of the credit markets?
I would certainly hope the answer is a resounding yes. It's been coming on in the latter part of this year. I see some signs of a thawing of the market. I would hope that it's a full-blown meltdown in the best sense of the word in 2010, where credit will be available for companies to apply a reasonable amount of leverage to a deal. Without the credit markets opening up, the deal flow and the ability to do deals will continue to be restricted.
MB: Do you expect to see private equity return to the market?
Absolutely, and in fact [private equity players] have never left the market. They continue to be active and continue to acquire assets. There are a lot of private equity firms out there, and there are small ones and medium ones that are buying assets—certainly at very attractive prices—with the understanding that it is a long-term investment in the b-to-b market. There are some private equity funds that have partnered with good operators taking advantage of the marketplace right now. That is why I say they have not disappeared from the market. A number of firms are actively trying to buy some properties and are buying opportunistically.
MB: How would you characterize the deals that are getting done?
They're mostly getting done with equity by strategic players and by private equity funds.
MB: What is your view of the future of b-to-b media in light of declining ad pages and EBITDA?
The future is bright, very bright, if b-to-b media companies follow a strategic path that will bring them back to prominence and dominance. That strategic path is being able to deliver their audience information from an agnostic base. By that I mean it will be a combination of digital media which encompasses the Internet. It will also include face-to-face, and it will include print. If someone just stays in the print market and only in print, they, in my opinion, will have a difficult time surviving. There are a lot of technologies and platforms being developed that can help b-to-b media companies ... such as lead-generation technology that can tie editorial keywords right into lead-generation platforms—just as one example.
MB: What kind of b-to-b media company will thrive in the future?
Delivering content electronically is going to be the key driver. The conundrum is that b-to-b media companies have traditionally had their revenue and profit coming from print, albeit in declining numbers now. They also have to invest in digital media, and they have to make that investment as their revenue and profits are declining. They have to make investments in digital media, and delivering information and charging for the delivery of that information. There's going to be a lot of testing that's going to happen in the future, a lot of testing of paid content to a limited audience and a very sliced-and-diced audience. The companies that have strong brands and strong brand loyalties will have the ability to do that, and they have to take advantage of it.
MB: What will be the fallout from heavily leveraged b-to-b media companies running afoul of their loan covenants?
Most of these companies are going to be restructured and have different balance sheets. The companies will survive, and they will follow the path to digital media that I described before. — S.C.