M&A pickup expected in 4th quarter

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After seeing a pickup in media M&A activity in the third quarter, industry observers expect more of the same in the current period, as uncertainty about the overall economy will likely trigger more transactions. “Q4 is going to be a very big quarter,” said Sanjay Chadda, a partner and managing director at investment bank Petsky Prunier, adding that he anticipates most of the media transactions to range from $50 million to $100 million. The market, he said, is “flooded with transactions that people are trying to get done before the end of the year.” Last week, for example, Mining Media International announced that it purchased three publications from Penton Media: Cement Americas, Concrete Products and Rock Products. Financial terms of the deal were not disclosed. Many companies came to market in the last quarter, Chadda said, because of concerns about possible changes in U.S. tax laws. “That not only affects sellers that are private companies but also potential tax changes to private equity firms,” he said. What's more, strategic buyers, following two consecutive quarters of healthy corporate earnings, have built up significant amounts of cash they are willing to invest in new properties, Chadda said. “Both strategic media companies and private equity players are looking to put their money to work,” he said. Richard Mead, managing director at media investment bank Jordan, Edmiston Group, stressed that there is strong momentum for media M&A transactions. “Corporate buyers are driving M&A deal flow, putting their capital to work with a focus on growth, and we expect that to continue over the next 12 to 18 months,” he said. Recent reports by Jordan, Edmiston and Petsky Prunier showed the pace of mergers and acquisitions in the broad media, information and marketing technology sectors improved in the third quarter compared with the same period in 2009. The combined number of deals in those sectors increased to 651 in the first three quarters of this year, up 42% from the year-earlier period, according to Jordan, Edmiston. The combined deal value increased 95% to $32.9 billion. There were 33 deals in b-to-b media, up 200%, while the value of the deals jumped to $470 million, more than an eightfold increase. United Business Media's $287 million acquisition of Canon Communications accounted for more than half the aggregate value. Jordan, Edmiston said that while private equity firms currently have a capital overhang of almost $500 billion, banks must start lending on smaller transactions (those involving companies with less than $10 million in EBITDA) to boost the number of M&A transactions among private equity buyers. “Traditional lenders should be supporting the overall media industry, and not just the big deals that are in the minority in terms of number of transactions and number of PE funds focused on the middle market,” Mead said. “Otherwise another financing source will fill that vacuum.” A report by Petsky Prunier found the number of M&A deals in the marketing, information and digital media/commerce arena totaled 200 in the third quarter, up 27% from the year-earlier period. The value of the deals increased 41% to $10.7 billion.
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