Media Mergers & Acquisitions to Continue Strong in 2006 According to 12th Annual Investment Bank Report

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AdMedia Partners Releases its 12th Annual Survey, Prospects for Media Mergers & Acquisitions

The media industry has seen an unprecedented level of activity from both private equity and strategic buyers, and there is nothing in the near term that would cause a slowdown in 2006

Optimism continues among media and financial executives about strong media industry M&A in 2006, according to findings from leading mergers and acquisitions firm, AdMedia Partners’ 12th annual survey, Prospects for Media Mergers & Acquisitions. The survey indicated EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) multiples are expected to remain at last year’s historically high levels and integration of digital content will be a critical component for media companies in 2006.

The Prospects for Media Mergers & Acquisitions report can be downloaded at: Media M&A Survey.

AdMedia Partners Managing Director Mark Edmiston noted that the majority of survey respondents were bullish that M&A driven by both strategic (67%) and financial buyers (70%) will increase over 2005’s strong level. Only 5% of survey respondents project any slowdown.

Edmiston observed, “Demand for digital content was clear in both the survey data and open-ended comments, and we expect to see more acquisitions of cross-media properties by traditional media companies in 2006.”

Although 56% of respondents expect strategic and financial buyers to increase their valuations for solid media properties in 2006, Edmiston noted that a substantial minority believe the opposite. Moreover, he said, there are other indicators that EBITDA multiples in most areas are at a plateau.

With the exception of newspapers, where EBITDA multiples have slipped from an average of 10-13x down to 9-10x in the past year, and interactive media, where they have soared, topping out at 14x EBITDA, multiples of EBITDA that respondents currently expect to pay or be paid in most media sectors remain consistent with last year’s historically high levels.

“The media industry has seen an unprecedented level of activity from both private equity and strategic buyers, and there is nothing in the near term that would cause a slowdown in 2006,” Edmiston said. “Down the road, tightening of lending criteria and potential increases in capital gains tax rates could make M&A less attractive, but in 2006 conditions remain favorable.”

In fact, Edmiston said, more than four out of five survey respondents expect to complete an acquisition or divestiture in 2006, and 42% expect to be involved in an M&A transaction outside the United States.

A larger, long-term concern is that fewer than half of the respondents think there are currently a healthy number of quality media acquisition targets, although more have a favorable outlook about the available merchandise now (46%) than did so last year (36%), reflecting the higher prices realized in deals consummated over the past year. However, if consolidation continues as projected, Edmiston said, there could be a severe shortage of viable acquisition targets in 2007-2008.

Given the current M&A climate and concerns about the future, nearly two thirds of respondents believe both prospective buyers (64%) and sellers (65%) should “act now” on prospective transactions.

Edmiston noted that while those believing sellers should “act now” has gained ground over the past two years, the percentage who would advise buyers to “act now” has dropped to the lowest level since 2001 (when it was 47%). In general, those who would advise buyers or sellers to “wait” believe valuations are going to change in their favor over the course of 2006.

Respondents to AdMedia Partners’ 12th annual survey were made up of companies that operate in a variety of consumer and B-to-B media, including online and interactive. 79% are private companies and 21% are public companies. 40% have revenues of 100 million or greater and 21% have revenues of under 10 million.

About AdMedia Partners

AdMedia Partners (http://www.AdMediaPartners.com) is a leading boutique investment bank that provides middle market mergers and acquisitions advisory services to advertising and marketing services, media and publishing, and related internet businesses. Founded in 1990 and located in New York City, the firm has completed over 100 transactions since 1999.

Selected transactions completed by AdMedia Partners in the last six months include:

  • Representing Bridge Worldwide, an interactive relationship marketing agency, in its acquisition by Wunderman, a unit of WPP Group.
  • Representing Creative Domain in its merger with Trailer Park to form one of the largest providers of diverse entertainment marketing services in Hollywood. The transaction was backed by a financial commitment from Lake Capital.
  • Representing Dittus Communications, a Washington, DC based public affairs firm with legislative and regulatory expertise, in its acquisition by Financial Dynamics.
  • Representing Federalist Group, a Washington, DC based government relations firm, in its acquisition by Ogilvy Public Relations Worldwide, a unit of WPP Group.
  • Representing Grupo Editorial Expansión, Mexico’s second largest magazine publisher, in its acquisition by Time Inc., a subsidiary of Time Warner.
  • Representing Gruner+Jahr USA in its sale of Inc. magazine and Fast Company magazines to Mansueto Ventures LLC.
  • Representing Dynamic Logic, the leading independent marketing research company, in its acquisition by Millward Brown, a unit of WPP Group.
  • Representing Taylor Rafferty, an independent global investor relations and financial communications advisor, in its sale to Xinhua Finance, China’s premier financial services and media company.
  • Representing Interweave Press in its acquisition by Aspire Media, a newly formed magazine entity backed by private equity firms Frontenac Company and Catalyst Investors LP.

If you have any questions regarding this survey, or any other media M&A topics, please contact AdMedia Partners.

Mark Edmiston

Managing Director

AdMedia Partners

444 Madison Ave., 19th Floor

New York, NY 10022

Phone: 212-759-1870

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Mark Edmiston
AdMedia Partners
212-759-1870
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