Two recent M&A reports showed that the pace of deals in the media and information sector picked up sharply in the third quarter compared with the same period last year. However, the two companies that released the reports differ on the prospects for media M&A activity in 2006.
"It's been a great year, but I'm concerned about how long this horse race can last," said Baran Rosen, president of Whitestone Communications, whose report stated that the number of magazine and trade show deals nearly doubled in the third quarter to 24, up from 14 in the same period in 2004.
One deal-Primedia's sale of its trade magazine portfolio to Wasserstein & Co. for $385 million-accounted for the bulk of the $538 million in b-to-b media deals in the third quarter, compared with $13 million in the same period in 2004, according to Whitestone.
M&A "activity will be strong in the fourth quarter," Rosen said, but added the caveat that "inventory is diminishing."
Adam Gross, VP-marketing at Jordan, Edmiston Group, offered a more upbeat outlook. "Discussions with folks in the business are promising that [the pace] will continue," he said. "There are only so many Hanley Wood deals out there," he said, referring to JPMorgan Partners' purchase earlier this year of the construction publishing company for $650 million. "But we're seeing a lot activity across all [media] sectors."
Jordan, Edmiston's M&A report tallied $1.8 billion in b-to-b magazine deals for the quarter, up 9% from $1.1 billion in the year-earlier period.
Gross said there are some "very interested bidders" for 101communications, the technology publisher that was put up for sale in October and is being represented by Jordan, Edmiston.
Jeffrey Dearth, a partner with media investment bank DeSilva & Phillips, said there are several b-to-b deals in the pipeline. He predicted a proliferation of deals driven by so-called "mugwumps," or one-time top b-to-b executives who are now bankrolled by private equity firms.
As an example, he pointed to Veronis Suhler Stevenson's sale last May of Canon Communications to Apprise Media, a company backed by Spectrum Equity Investors and led by Chairman-CEO Charles McCurdy, a co-founder of Primedia.
Former Advanstar CEO Bob Krakoff, who is reportedly trying to buy back his former company with private equity, is another example.
While industry analysts note the huge deals from earlier this year, there are two big b-to-b plays that are now in jeopardy. Bain Capital's planned purchase of School Specialty for $1.5 billion is threatened by weaker-than-expected earnings results for School Specialty, and VNU's acquisition of IMS Health for $6.9 billion is on the verge of collapse after VNU shareholders expressed fierce opposition.
Meanwhile, VNU itself could be a takeover target. Shares in VNU rose more than 3% in late October on a report that private equity firms were considering a bid for the company.