Potential sellers will resist, of course, giving up assets for lower prices than they could have gotten just a few months ago. Or they may consider visibility too poor to make any strategic decisions.
"As financing becomes scarce, or at least extremely expensive, the values that people can reasonably pay obviously drop," said Charles McCurdy, chairman-CEO of Apprise Media, a private-equity firm focused on niche media. "That's true for public companies as well as private equity. And the expectations or objections of owners who may be sellers don't adjust as quickly, so you end up with a period of time during which there's a disjunction between seller expectations and buyer capacity. Deal flow tends to drop dramatically. My observation would be that we're in the middle of that right now."
As the months pass, however, motivated sellers will gradually come to the surface. Some will need to raise cash to make their debt payments. That's the scenario that had been rumored to be forcing CBS or Viacom to the market -- until Sumner Redstone told The Wall Street Journal last week that he would not sell either. Some of the other sellers will be media companies doubling down on their top priorities -- and relieving themselves of less-profitable distractions.
"When the economy constricts, top management gets involved with a closer scrutiny of not only their portfolio and individual properties but the business they should be in," said Polly Perkins, senior VP-business development at AdMedia Partners, a media and acquisitions adviser. "You might not read this week or next month about a major deal ... but the thought process of a major deal is being discussed."
Among potential buyers, private equity faces new limits on its acquisitiveness as banks insist on higher interest rates and lower levels of leverage. While OpenGate Capital did just assemble a deal to buy TV Guide magazine, it's only paying $1 -- and gets a multimillion dollar loan from the seller at 3% interest to boot.
But established media companies are actually entering an especially promising hunting season.
"The strategic buyers are in a very good position to make acquisitions," said Efrem "Skip" Zimablist III, president-CEO at Active Interest Media, which publishes magazines including Backpacker and Yoga Journal. "They have cash available and less competition for the deal."
Not long after the business emerged from the recession that kicked off the '90s, for example, The New York Times Co. struck its 1993 deal to buy the Boston Globe, said James Rutherford, exec VP-managing director at Veronis Suhler Stevenson, a private-equity firm. "We were only sort of coming out of the downturn," he said. The selling family was motivated to find a buyer before 1996, when the two family trusts controlling the company were set to expire.
Ironically enough, The New York Times Co. said last week that it might write down the value of its battered New England operations -- with the Globe at their center -- by up to $150 million. The cyclical and secular forces confronting the company, moreover, may lead the company to cut the dividend that now sends the Ochs-Sulzberger family millions of dollars every year. Reducing that payout could one day make the clan more likely to consider a sale.