Spurred by recession, media investment banks launch restructuring services

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By Sean Callahan

Communications industry investment bank Berkery, Noyes & Co. announced last week that it has formed a strategic partnership with Seneca Financial Group to advise media, information and other companies in need of restructuring services.

The two companies said in a statement that they hope to help publishers and other media businesses “develop new business models to reflect the realities of the current economic and financial marketplace, as well as restructure balance sheets that are over-leveraged by today’s standards.” Seneca, founded in 1993, has previously worked with Texaco, Federated Department Stores, LTV Corp. and other companies seeking restructuring advice.

With Berkery, Noyes’ announcement, the establishment of restructuring practices by media investment banks officially became a trend. DeSilva & Phillips launched an operational restructuring practice in December in partnership with Zielinski Financial Advisors, run by former Hanley Wood CFO James Zielinksi. “We have a growing practice,” said Roland DeSilva, co-managing partner of DeSilva & Phillips.

Other media investment banks serving b-to-b media have said they are exploring introducing their own restructuring practices in the near future. Baran Rosen, president of mergers and acquisition advisory firm Whitestone Communications, said his firm has a consultancy practice. “We launched something similar, and in fact we have our first assignment in progress now, working with a training company to help them on marketing and setting up a board of advisers,” Rosen said.

The establishment of these restructuring practices offers a view into the needs of b-to-b media and other communications industry companies. As advertising revenue drops—precipitously in some cases—media companies are finding that the traditional ad-supported business model is in danger.

In the case of media companies owned by private equity funds, steep drops in struggling industries—such as banking and home construction—have left these heavily leveraged media companies in danger of violating loan covenants. For companies caught in this predicament, restructuring is a necessity. “We’ve seen a fairly high need,” said John Shea, Berkery, Noyes COO.

At the same time, these restructuring practices are a sign that media investment banks are adding a new wrinkle to their own business models. Over the past decade, such firms were elevated in no small part by the rising tide of private equity funds and their increased investment in media companies. With the current credit crisis, heavily leveraged investment in media companies has essentially been halted, meaning deal flow has slowed significantly.

In this new climate, media investment banks are looking for other ways to serve private equity funds.

“To be frank,” Rosen said, “we all like additional revenue sources when M&A slows down. It’s a combination of that plus doing a better job for our clients, trying to do what we can to help them.”

Kathleen Thomas, managing director of Berkery, Noyes, said: “We’re here to help these companies work with the banks to get the right capital structure to their business so they can get through these times, and come out on the other side, and grow and thrive.”

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