Content Matters

The M&A business in the content industry has been booming in recent years, due in large part to the private equity market.  Private equity firms have found the sector attractive, due to technology drivers and low infrastructure costs.  According to DeSilva & Phillips, the 2006 total of 151 acquisitions with a value of $20.5 billion dwarfed the activity of the prior five years.

But will recent turmoil in the credit markets slow private equity investments?

A typical private equity investment is 50% funded by investment capital and 50% with debt.  The availability of cheap, easy credit has fueled private equity investments in recent years.  As debt becomes more expensive, the cost of doing these deals will be driven higher.

At the same time, some of the strategic investors may be sitting on the sidelines for unrelated reasons.  Reliable acquirers such as Thomson and Reuters may become net sellers rather than buyers, as they navigate regulatory approval of their own merger, while Dow Jones seems unlikely to make any big moves until their situation is settled.

So, does this mean an end to content industry M&A?  Hardly.  There’s still a lot of money sitting on the sidelines looking for deals.  Strong companies with solid growth will continue to see many suitors, albeit perhaps at not such frothy multiples, and most likely after a brief cooling off period.  But old-line companies with stagnant top lines will not garner the attention they’ve become used to, as the strip & flip model is not supported by the current economics.