Media Wonk

Link This | Email this | Comments (0)

In new media deals, size matters - May 23, 2007

Private equity wants into show business.

“The media industry is ripe for private equity today,” Richard Bressler, a partner at Thomas H. Lee Partners, told the Argyle Executive Forum in NY Wednesday.

“There is a great deal of turmoil in the business and nobody knows who the winners are going to be. People need to invest and experiment and that carries risk. That’s ideal for us.”

Lee and a group of other private equity firms purchased The Nielsen Company last year for $11 billion. It also recently acquired Spanish-language broadcaster Univision. It currently has a $28 billion offer pending for radio giant Clear Channel.

With capital pouring into private equity funds, “the deals keep getting bigger,” Bressler said. “And with each new big deal, the universe of possible deals gets larger.”

Media companies are increasingly looking to private equity firms as a source of capital, according to Bressler, the former CFO of Viacom, because the public markets have soured on the industry.

“The public markets like certainty, and if you don’t have certainty you’re not going to get any money out of them. Private equity is willing to accept more risk because we have a longer time horizon for returns. Public companies get measured every quarter, but we can set performance goals of a year, or even a few years. That makes it a lot easier for companies to invest.”

Whether the private equity largess will filter down to new media companies, however, is another matter.

At a Digital Breakfast event co-sponsored by Content Agenda Tuesday, investment bankers on the panel were leery of digital deals.

“There’s a lot of noise, but not a lot of transactions that make sense,” Jonathan Knee of Evercore Partners said. “No one has figured out a business model yet that makes sense. A lot of bigger companies, like Yahoo, are placing bets all over the place , without rhyme or reason, much like placing multiple bets in roulette and hoping one of them pays off.”

The biggest challenge for bankers, Knee said, is that most of the available new media deals are tiny.

“The big media companies want to talk because they’re afraid of missing out on something. But all the companies they’re buying are tiny.”

That’s a problem for bankers, he said, because bankers “are only interested in their cut.”

The deals that are getting done, Tolman Geffs of Jordan Edmiston said, are valuing new media companies at unrealistic levels.

“Many of the companies that are bursting out of the bubble right now, like Joost and Facebook, are destined to fail because they can never achieve their valuations,” Geffs said.

Of course, if the deals keep getting larger, the bankers may decide they don’t care so much if they’re placing too high a valuation on a target.

 

[Deals & Dealmakers]  [Legal]  [Trade]   LEAVE A COMMENT