M&A Market Past Its Peak? Here’s How to Deal
While a debate on whether or not the U.S. economy is on a collision course with a recession is best left to the bears and the bulls, it is clear that a number of economic forces have made for an up-and-down 2007. Increasing turmoil in the housing and stock markets, a tightening credit outlook, and skyrocketing fuel and food prices have left both American consumers and businesses wondering what’s in store for 2008. And yet, the mergers and acquisitions market within the media and information industries remains relatively strong in the face of these adverse conditions, according to many observers.
M&A firm Jordan Edmiston Group Inc.’s (JEGI) October 2007 Client Briefing—which recapped the first nine months of the year and looked ahead to the fourth quarter—contained support for both sides of the argument. A record number of deals (637) were announced in the media and information industries (11 market segments tracked by JEGI) through 2007’s first three quarters, totaling more than $95 billion. During this period, nearly one-quarter more consumer-magazine deals were announced compared to the previous year’s first three quarters, and this segment saw nearly an 82-percent increase in total deal value. Business-to-business magazines saw a 3.3-percent increase in number of deals over the same period in 2006, but deal value was down about 15 percent. Online media remains one of the industry’s most impressive segments, exhibiting a meteoric rise in both the number of deals (71 percent) and deal value (45 percent). Still, JEGI did acknowledge in its Client Briefing that the pace of M&A deals has slowed over the second half of 2007, and certain transactions have stalled, thanks largely to the credit-market disruption.
Why the M&A Market Remains Strong
In a letter accompanying JEGI’s Client Briefing, Vice President of Marketing Adam Gross made a case for his belief that the vibrancy from earlier this year could continue. First, the Federal Reserve “moved decisively to ease interest rates” in support of consumer spending, he wrote. Second, the credit crunch—at least at the time of his memo—had mainly affected only large-cap transactions (deals of more than $500 million in value) through the first three quarters. Third, expectations for corporate-earnings growth have, by and large, remained strong, healthy and “seemingly reasonable. In general, corporate balance sheets are strong, businesses have sizable cash reserves, and profit margins are holding steady,” wrote Gross.