PwC Media Outlook: Strategic Buyers To Dominate In ’08; Fewer Mega Deals; More Consolidation

imageIn light of the credit markets, PricewaterhouseCoopers predicts media deals in 2008 will be dominated by strategic buyers, but that private equity buyers aren’t going to disappear. While leverage-backed buyers obviously face challenging conditions, they continue to raise prodigious gobs of cash — $281 billion in 2007 — that will be parked somewhere. For 2008, there’s no indication (yet) that investors are planning to allocate less money to these firms. Old line media assets, like cable and publishing are the most likely acquisition targets. As for strategic media buyers, the song in 2008 will remain the same: traditional media companies will keep making deals to help them navigate sand shifts brought on by digital. Microsoft’s (NSDQ: MSFT) bid for Yahoo (NSDQ: YHOO) might be the perfect (if oversized) symbol for 2008: an offer brought on by perceived strategic necessity, at a price that leverage buyers can’t justify. Some highlights from the report:

A look back: PwC isn’t the first to point out that there were two markets in 2007. The big, monster deals were mostly announced in the first half of the year, with PE usually on the buying end (Tribune, Univision, Thomson (NYSE: TOC) Learning. Also ClearChannel (NYSE: CCU), which has yet to close.). While actual deal volume fell slightly for the PE firms, deal value soared to $44.8 billion from $19.4 billion in 2006. This activity definitely started to slow down as credit conditions changed. Strategics were heavy in the advertising and marketing sector, as interesting in ad networks drove a flurry of activity. Total deal volume in this space was $12.2 billion, as Microsoft’s purchase of aQuantive accounted for over half of this — it was also the largest overall strategic acquisition, with News Corp.’s (NYSE: NWS) acquisition of Dow Jones coming in second. Note that this doesn’t include Google’s (NSDQ: GOOG) planned acquisition of DoubleClick, which has yet to receive regulatory approval.

Industry outlook: The Olympics and the election will help drive a 6 percent increase in ad spend in 2008. Consumer and end user spending on media is expected to grow at about the same pace.

Predictions: Foreign buyers: This isn’t unique to the industry, but the combination of bursting coffers and a weak dollar almost guarantee that foreign buyers will have a bigger influence in the coming year. More middle market activity: It looks like this is basically a way of saying fewer monster deals on tap in 2008, due to credit conditions and the economy. Consolidation: Basically, as old media industries continue to face disruption, they’ll close ranks and consolidate some more.

PwC’s 2007 scorecard: Just to project some confidence in the the strength of its predictive abilities, PwC scores itself on its prior-year predictions. According to them, they got a 100 on the test, although they didn’t exactly stick their necks out too far at the end of 2006, as their predictions included: “2007 will be another active year”, “The number of mega deals to exceed 2006″, “Evolving technologies and convergence of E&M, technology and communications industries create opportunities”, and “Advertisers must address convergence to reach consumer”.

Bottom line: The basic argument about the rise of strategic buyers in 2008 has been the conventional view for some time. Previous deal reports have predicted the same thing as have various industry principals who have spoken directly on the matter. As for the nature of strategic deals, consolidation in traditional media, as well as more digital activity look like safe guesses. Nobody seems comfortable predicting otherwise.

Release | Full Report (.pdf)

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