In Print and Online: Acquisitions in the Media Sector

The media sector has been seeing a fair amount of merger and acquisitions activity lately. Traditional print and broadcast media firms, struggling to compete with new online and mobile media outlets, have been targeted by private equity buyers. Meanwhile, online players have been buying up innovative new content providers in order to remain competitive and keep up with the latest technologies.

Radio station operator Clear Channel Communications recently agreed to be acquired by Bain Capital and Thomas H. Lee Partners for about S18.7 billion.
Thomson Financial describes the deal as the largest buyout to date in the media and entertainment industry. But the deal is only one of several recent private equity buyouts in the traditional media sector. After an extended bidding war, Spanish-language broadcaster Univision sold to a consortium of private equity firms for S12 billion.

On the publishing and printing side, Reader's Digest Association recently agreed to be acquired for $1.6 billion, plus the assumption of about $776 million in debt. The Tribune Company, which owns 11 newspapers and a number of television stations, has received considerable interest from buyout firms and private investors after announcing that it might sell all or part of the company.
Traditional broadcast and print media companies are facing competition from other media sources. Between the Internet and the media content now available for mobile devices such as cell phones and handhelds. consumers can access news, information, and entertainment on demand. Advertisers are responding by shifting a significant portion of their ad dollars to new media clients. With the loss of advertising revenue, many traditional media companies are seeing a corresponding decline in their share value.

The low stock prices make these companies attractive targets for private equity players, since with stock values depressed the media companies can be acquired for less. Since traditional media companies still enjoy fairly stable sales figures, buying them up makes good business sense for investment companies. Subscription services take money up front and deliver product over time, generating a lot of available cash. And once a company is taken private, equity firms can make up for lost advertising revenue by selling off assets or making drastic operational changes.

Consolidation is also occurring in the Internet media sector, as major corporate players such as Google make new acquisitions. Recent sector deals include Google's S 1.65 billion acquisition of YouTube and media conglomerate News Corp.'s 2005 acquisition of Intermix Media, the owner of popular social networking site MySpace. Current deals reported to be in the works include Google buying iRows, an Israel-based provider of a browser-based spreadsheet service, and a Yahoo! deal to acquire Bix.com, a site that allows users and advertisers to stage online contests. Bix.com was founded in January 2006.

As popular Internet sites feature more social features and user generated content, major Internet players have turned to acquisitions to remain competitive. While the previous boom in Internet start-up companies was driven by speculative investment buyers, the current run of acquisitions is being led by established companies within the industry who already have successful business models.