JEGI Reports Strong Uptick in M&A for Media and Entertainment Industry
(Press Release) New York, NY September 30, 2010 — The first three quarters of 2010 saw 651 M&A transactions worth $32.9 billion announced across the media, information, marketing services and technology sectors, as tracked by The Jordan, Edmiston Group, Inc. (JEGI), the leading independent investment bank specializing in mergers, acquisitions and divestitures across these core markets.
The number and value of M&A transactions in the first three quarters of 2010 increased 42% and 95%, respectively, over 2009 levels. The surge has been led by corporate buyers driving 86% of total transactions announced. These "strategic" buyers have unprecedented levels of cash on their balance sheets, with the S&P 1500 companies holding more than $1 trillion in liquid assets. Large cap companies in particular have increased their liquidity, with the S&P 500 increasing their holdings of liquid assets by 46% since 2008.
Smaller Deals Abound
Q3 saw a number of smaller M&A transactions, with only one deal over $1 billion in value—IBM's $1.7 billion acquisition of Netezza, a data analytics company, as IBM continues to build out its data, analytics and optimization platform. The next largest deals of the quarter were Walt Disney Company's acquisition of social gaming company Playdom for $763 million, Google's acquisition of ITA Software, travel search and booking technology, for $700 million, and Hellman & Friedman's acquisition of Internet Brands, an online content company, for $640 million. Overall, the average deal size for M&A transactions in the first three quarters of 2010 was $51 million, compared to $120 million in 2007.
Activity Led by Innovative Emerging Companies
Emerging companies in the digital, marketing services, and mobile sectors accounted for 73% of total deal activity in 2010YTD, and the number of deals grew 73% over 2009 levels. The nascent Mobile Media & Technology market in particular saw a 148% increase in number of transactions announced The number of deals in all other sectors covered by JEGI fell by ‐4% in 2010 YTD. These emerging companies have been trading earlier in their life cycles at lower valuations, with an average transaction size in the digital, marketing services, and mobile sectors of $33 million in the first three quarters of 2010, compared to nearly $100 million in the balance of the media and information sectors covered by JEGI.
This is truly a difficult economic environment in which to make predictions. The news bounces back and forth between positive and negative—strong corporate earnings reports are offset by flat retail sales; one day the debt market seems to be easing, and the next, banks are still jittery. Private equity firms have a significant amount of liquidity, with a $418 billion capital overhang, according to Pitchbook. However, banks must start lending on smaller transactions (those below $10 million in EBITDA) to increase the level of M&A deal‐making among PE buyers.
In the middle‐market, JEGI expects continued strong activity across the firm's core sectors, as strategic companies continue to put their capital to work to acquire transformative business models and position their companies for growth. Interactive and mobile assets will continue to have a strong following, as high growth businesses with innovative models. Many PE portfolio companies that were acquired during the major buying cycle of the early and mid 2000's are primed for divestiture and should come to market over the next year.
The largest cloud over the M&A environment is the uncertainty over the path of the economy during the next six to twelve months, and the consequent unwillingness of banks to loosen lending restrictions. Following bankruptcies and restructurings, banks have become owners of former PE platform companies. Coupled with their overall hesitancy to invest in new media and technology assets, the banks are not yet prepared to resume supporting the M&A activities of private equity firms.
JEGI Activity Continues
JEGI recently announced four more noteworthy transactions: the sale of Forbes' Investopedia, an online provider of financial information and investing education, to ValueClick for $42 million; the sale of Rigzone, a provider of data, information, and career services for the oil and gas industry, to Dice for $39 million plus an earn‐out; the sale of Accela Communications, interactive video communications, to KIT Digital; and the sale of mSnap, a mobile ad network, to Marketron. JEGI has a robust and active pipeline of deal activity and expects to close several notable transactions in Q4.
To read the entire report, go to http://www.jegi.com/