Media M&A doing better than you might believe

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Tolman Geffs is a managing director of media investment bank Jordan, Edmiston Group. The firm issued a report in early January analyzing media and information transactions in 2008. The report showed that while overall deal value fell precipitously, dropping 68% in 2008 compared with 2007, the number of deals fell only 13%. Geffs explained that Jordan, Edmiston believes the underlying cause of the plunge in deal value was linked to the shift in media industry growth away from traditional formats such as newspapers, magazine and events to online properties and databases, which are still in their infancy and thus command lesser dollar figures (if higher multiples). Media Business asked Geffs about the Jordan, Edmiston report and what it says about the media and information industry as a whole. Media Business: What shift do you see in the media and information sector and how is that affecting merger and acquisition activity? Geffs: It's no secret that M&A activity slowed down, but probably not as much as people think it did. In mergers and acquisitions, the volume of deals and pricing of deals rise and fall like the tide. But under that, there's a real shift in the center of gravity where media and information are headed, where the industry is headed. Regarding industry growth, when we look across the major traditional media sectors versus the growth sectors [database and information, b-to-b online media, consumer online media and interactive marketing services] and we look at the last seven years [2001-07], for every dollar of revenue growth, 67 cents went to the traditional newspaper and magazine sectors and 33 cents went to new sectors, which showed pretty good growth capacity. But when you look forward to the next four years, the shift is staggering. Those traditional sectors are going to take 12 cents of every dollar of revenue growth, and the growth sectors are getting 88 cents. If you compare the last seven years to the next four years, then it's not surprising that M&A has also strongly shifted from being large deals in traditional media to a higher volume of midsize deals in those growth sectors. The total [number of] transactions for the full year of 2008 was down just 13%, but there was a shift to small and midsize deals. MB: There are now so many choices in regard to where companies can spend their marketing dollars. How can media companies ensure that they capture their fair share? Geffs: File this under the heading, “It's easy for him to say that.” It's by aggressively integrating new tools and services that your user will value. We're still only in the third inning [of the Internet's rise]. Generation 1.0 of the Internet was flat display; generation 2.0 is lead generation. But now we're moving to generation 3.0, which is active CRM. MB: How much impact did the credit crisis have on limiting larger deals in 2008? Geffs: A lot—for two reasons. There's a direct reason and an indirect reason. The direct reason is that it knocked private equity's funding of major transactions out of the market. The indirect reason, which is a bit more subtle, is the same sort of turmoil that led to a constraint of credit also is affecting uncertainty out in the general media economy. If someone is considering a large transaction for a company generating $100 million of revenue, it can be unclear what the revenue will be in 2009 or 2010. And with those larger transactions, it makes getting the transaction price right more critical. It's creating an environment where people tend to conserve cash and make more, smaller bets. MB: What does the future hold for the media world? Geffs: Media will do great. Companies that used to depend on print advertising, they'll adjust. They'll offer information and marketing options through a number of channels. They will be more information providers and tools providers. M
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