A turbulent stock market, a gloomy credit market and the threat of a recession have slowed the pace of mergers and acquisitions in the media and information industries, down from their record-breaking numbers in 2006 and 2007. However, "deals are still happening," says Baran Rosen, president of New York-based M&A firm Whitestone Communications. Rosen spoke with Publishing Executive about the effects an unsettled economy is having on publishing deals.
After a couple of years of record numbers and values of M&A transactions in the media industry, what is your outlook for 2008?
Baran Rosen: 2007 was a strong year, although the second half really started to cool off because of the sub-prime situation. The first half of 2008 will continue to be down from the peaks of the first half of '07, but I think the pace is still fairly strong. So it's not like we're headed into a deep freeze. Deals are still happening. I think we will just see a slower pace.
The main thing that's impacting it is the banks are not providing terms that are as attractive as they were before. So that means that buyers who want to do a deal are having to pay a higher interest rate, and it means that if they want to get the same return, they have to offer a lower [purchase] price. If they have to offer a lower price, it means that they will do fewer deals because they'll find more reluctant sellers.
Are there any particular areas within the market that you think will remain strong?
Rosen: The area where we saw the hottest activity in '07 was content-related, Internet deals. And that area still seems to be strong and that model still seems to have room for growth, even with an economic slowdown.
Do you see more mid-size deals getting done this year?
Rosen: Yes... the number of mid-size deals will increase, because the larger ones are [going to be] harder to do.
Will strategic buyers take a more active role in 2008 as private-equity buyers wrestle with the tight credit market?
Rosen: [Strategic buyers] will continue to be active for the right deals. But I think some of the strategics, if their financial results start to decline, will be less active. Public companies tend to hunker down when a recession comes and not want to spend a lot on acquisitions except for the exceptional deals, so I... don't think they're going to eagerly run to the front of the line.
...On the deals [strategic buyers] want to do, they should be more competitive with the private-equity people [as strategic buyers'] pricing should be better. So I'd say that the corporate people should be more successful in their acquisitions in terms of number of deals they bid on versus number of deals they win. They should have a higher success ratio. But I don't necessarily see them stepping up the level of their acquisitions.
