You will be redirected back to your article in seconds

The business of buyouts

Mergers, takeovers become Euro's top reality game

LONDON — With private equity outfits awash with cash and even Vivendi Universal drawing up a corporate shopping list, don’t expect the current wave of merger and acquisition activity sweeping Europe’s broadcasting landscape to dry up anytime soon.

Indeed, with European and U.S. bidders currently circling U.K. channel operator Flextech, there may yet be another billion-dollar deal in the bag by the end of the year — on top of a string of recent acquisitions that includes the proposed takeover of Haim Saban’s ProSiebenSat1 by German publishing empire Axel Springer and the $2.5 billion sale of pan-Euro station group SBS to equity firms Permira and KKR.

“What you’re looking at is a significant surge in private equity across the business world,” notes veteran U.K. TV exec David Elstein, who himself was involved in the $242 million takeover of Hallmark’s international TV business earlier this year. “Once private equity houses get a feel for media assets, they transfer their experience across boundaries and are actually more fluid and better informed than the in-position operators who are busy running their businesses.”

Private-equity investors are certainly emerging as key players in this latest round of consolidation, with the likes of 3i, Apax and Permira all looking to put their considerable funds to work in the media sector.

Knowledge is power

“There’s money and there’s sector knowledge,” notes Paul Fitzsimons, a partner in the media team at Apax, which recently ran the rule over ITV and paid $921 million for U.K.’s Hit Entertainment earlier this year. “In the TV market normally, businesses have established market positions. You know what you’re buying.”

At the same time, though, media companies are also becoming more active after a quiet two or three years.

“The trade buyers who have been nursing their balance sheets are back in the market,” notes Olivier Wolf, media sector leader at PricewaterhouseCoopers’ corporate finance team.

While none of Europe’s media moguls are in any hurry to follow in the footsteps of Jean-Marie Messier, Axel-Springer’s $4.9 billion takeover of ProSiebenSat1 would certainly create a powerful new rival to German media giant Bertelsmann, should it get the nod from competition authorities.

And as for Bertelsmann-owned RTL, it too has been on something of a buying spree of late. This July the pan-European broadcaster finally plunked down $421 million for United Business Media’s 35% in U.K. commercial broadcaster Five and the company is also seen as a frontrunner in the bidding war for Flextech, which is being auctioned off by cable operator Telewest ahead of its merger with NTL.

Quiet on Yank front

Whether or not Telewest is serious about off-loading its content arm is another matter, and RTL faces some stiff competition from BSkyB, Viacom, Discovery Networks and NBC Universal. But for the most part, the U.S. majors have been noticeably absent from the dealmaking in Europe, despite last year’s relaxation of ownership regulations in the U.K., which opened the door to overseas investors.

“I remember two years ago, all the talk was the Americans are coming, the Communications Act releases all the big U.K. media assets and it’s all going to be bought,” recalls Elstein. “Nothing got bought.”

That’s not to say that the studios aren’t paying close attention to the market.

“We’re still looking at what investments we can make in the broadcast area,” says John McMahon, president of Sony Pictures Television International’s European operations. “We tend to look at unique opportunities.”

For now the weak dollar is one factor standing in the way of further U.S.-backed bids. And despite recent reports that Time Warner is sniffing around the U.K.’s ITV again, Europe’s established commercial broadcasters are largely seen as too pricey.

“A number of the studios would love to own commercial broadcasters in Europe but only at the right price,” notes Janet Goldsmith, a director at London-based consultancy Mediatique. “Overpaying for a mature business is a very dangerous idea.”

Instead, the new wave of takeover targets are largely in markets with greater growth potential.

“It’s in areas that are still developing and growing, rather than the main commercial terrestrial broadcasters in Europe,” she adds. “It’s where there’s growth and where people have gone in early.”

Active territory

Eastern Europe, for example, is one region where Goldsmith sees potential for further deals, and pioneering station group CME could be one prime target. CEO Michael Garin is more focused on continuing the Nasdaq-listed company’s own expansion plans, however, having already seen its market cap grow from $450 million to $2.1 billion in the space of 18 months.

“We’re approached fairly regularly,” says Garin. “We have no interest in exploiting that at the moment. We think we can build more shareholder value on our own.”

Perhaps the most attractive opportunities, then, are new digital services, such as VOD, IPTV and mobile content plays, especially for existing commercial broadcasters. “Because their ad revenues are under pressure, they’re looking at multichannel acquisitions and new platform development, and most of the innovation tends to come from smaller start-ups,” notes Goldsmith.

The big question for the likes of SBS, Hit and Hallmark, meanwhile, is what will happen when their new backers are looking for their exits in three to five years time? Will these assets be floated, along with other acquisitions, to create new players in the market, or will they simply end up being sold to established media players?

Exit strategy

“When you look overall at the media world, the big are getting bigger in a lot of cases so the number of strategic buyers is shrinking somewhat,” notes Sony’s McMahon. “We’re in for some very interesting times in the next three to five years as some of the equity players start to look for the exit strategy. Do they look to flip it to somebody? Or will private equity look to IPO them?”

Either way, it’s good news for a company like Sony that boasts strong content assets.

“I think people see that there is a lot of growth opportunity in the marketplace for content, distribution channels and for getting assets that can help people position themselves for some of the distribution channels also,” says McMahon. “Hopefully it means that it’s a good strong market, because that means everyone is looking for content.”

More From Our Brands

Access exclusive content