Asset price rises promise more media M&A

By Victoria Howley

LONDON (BestGrowthStock) – Higher valuations demanded by sellers of media assets are a sign that mergers and acquisitions (M&A) could start to recover across the sector, executives at the Reuters Global Media Summit said this week.

Supportive debt markets and an anticipated supply of better quality assets augur well for a rebound in dealmaking after three lean years of cost-cutting and deleveraging due to the financial crisis.

Global media and entertainment M&A has slumped to $93 billion this year from $336 billion near the height of the bull market in 2006, according to Thomson Reuters data.

“What you are seeing now is that the expectations of sellers are rising, so prices are moving up,” said Robin Freestone, chief financial officer of Financial Times publisher Pearson (PSON.L: ), adding that prices were not yet back to 2007 levels.

“In some ways that’s beneficial, because it does mean that people are putting higher quality businesses on the market. In 2008, we actually did very little M&A, not for want of trying.”

In Europe, the cable sector has led the way, boosted by maturing private equity investments, where current owners are ready to exit.

U.S. cable company Liberty Global (LBTYA.O: ) bought Germany’s second-biggest cable company Unity Media from BC Partners and Apollo a year ago for $5.2 billion.

Swedish private equity firm EQT has mandated JP Morgan and Deutsche Bank to sell or float Kabel Baden-Wuerttemberg, Germany’s third-largest cable company, sources have told Reuters.

Mike Fries, chief executive of Liberty Global, said he thought German cable would benefit from further consolidation.

“In the case of Kabel Baden-Wurttemberg, you know, we will look at that. I don’t know how aggressive we will be. We’re still not entirely sure about the regulatory framework in Germany,” he said.

In 2004, market leader KDG tried to merge KabelBW and Unity Media to create a heavyweight rival to Deutsche Telekom (DTEGn.DE: ), only to be thwarted by antitrust authorities.

Fries added that Liberty Global was sitting on about $3 billion of cash, which could be used for share buybacks or alternatively for acquisitions.

Freestone said Pearson had roughly around 500 million pounds ($779 million) to spend, with shareholders supportive of a series of acquisitions in the last six to seven years that had generated after-tax returns of about 12-13 percent.

Improving conditions for M&A are expected to drive deals across the media business.

Rupert Murdoch and News Corp’s (NWSA.O: ) long-anticipated buyout attempt of BSkyB (BSY.L: ) has already emerged, worth 7.8 billion pounds.

Bankers expect that other perennials, such as British marketing group Aegis Plc (AEGS.L: ) attracting interest from French rival Havas (EURC.PA: ), could follow suit.

Martin Sorrell, chief executive of the world’s largest advertising group, WPP (WPP.L: ), predicted again that the two would merge this year. He added that M&A activity was already frenetic in the United States.

“There is a lot of activity in what I will describe as the small and medium-sized company area. I think a lot of people are interested in selling assets before the end of the year,” Sorrell said.

But he added that current activity might be related to the termination of Bush-era tax-cuts at year-end, which has encouraged private equity firms to rush to unload portfolios.

(Additional Reporting by Kate Holton, Georgina Prodhan and Nicola Leske; Editing by Will Waterman)

($1=.6417 Pound)

Asset price rises promise more media M&A