U.S. Media M&A Could See Record Year In '08

By Louis Hau, media reporter for Forbes.com.

The value of merger and acquisition deals in the U.S. media industry could reach record levels in 2008 if pending mega deals like Microsoft's bid for Yahoo! are completed, Price Waterhouse Coopers said in a report released Monday.

The huge jump in volume stemmed from a backlog of transactions announced in 2006 and continued interest in media deals in 2007, with the top three disclosed media deals involving private equity buyers, including the Sam Zell-led buyout of Tribune for about $8 billion, Apax Partners and Omers Capital Partners' $7.8 billion purchase of Thomson Learning and the $13.5 billion takeover of Univision Communications by Madison Dearborn Partners, Providence Equity Partners, Texas Pacific Group, Thomas H. Lee and Saban Capital.

Although changing economic and debt-market conditions make it tricky to forecast M&A activity this year, "With a total of 341 announced deals in 2007 pending closure, and mega transactions announced in the latter half of 2006 closed or cleared in early 2008, the new year is set to mirror or surpass that of 2007,'' PwC said in its annual report on M&A activity in the media industry.

The continued convergence of media, technology and communications will drive deal volume. "As technology evolves and enables consumers to access content through various mediums, [media] companies will expand capabilities and acquire new platforms to attract consumers," PwC said.

That means the wave of consolidation seen in 2007 in publishing, advertising and marketing, middle-tier broadcasting and the Internet software and services sectors should continue into this year, PwC said.

Other factors fueling media M&A: the continued weakening of the U.S. dollar and recent interest rate cuts by the Federal Reserve, which should generate greater interest in U.S. media properties among potential foreign acquirers, particularly European buyers, PwC said.

After an unusually busy 2007, private equity players will remain active, but "the credit crunch may put an end to mega private equity deals for the time being and dampen private equity's M&A pace,'' PwC said. The firm added that an increase in strategic investments and greater interest among foreign parties should offset the expected slowdown in private-equity activity.

Private equity investors completed media deals worth $44.8 billion in 2007, accounting for 41% of disclosed U.S. media deal value in the year, compared to $19.4 billion, or 15% of total deal value in 2006, the report said.

A total of 1,168 U.S. media M&A deals were completed last year, up 16% from 1,008 in 2006, although the value of disclosed deals fell nearly 17% to $108.1 billion from $129.7 billion, PwC said.

Among the most prominent transactions of 2007 were News Corp.'s (nyse: NWS - news - people ) takeover of Dow Jones for more than $5 billion and a flurry of deals in online advertising, including Microsoft's (nasdaq: MSFT - news - people ) acquisition of aQuantive (nasdaq: AQNT - news - people ) for about $6 billion, WPP's (nasdaq: WPPGY - news - people ) purchase of 24/7 Real Media (nasdaq: TFSM - news - people ) for $649 million and Yahoo!'s (nasdaq: YHOO - news - people ) buy of Blue Lithium for $300 million.

Online advertising will remain an active arena for M&A activity this year, PwC said, pointing to the pending completion of Google's (nasdaq: GOOG - news - people ) planned $3.1 billion takeover of Double Click, AOL's expected closing of its $275 million deal to buy Tacoda and Microsoft's bid for Yahoo!.