In the media biz as elsewhere these days, cash is king — but for hoarding, not spending.
That’s created a paradox in which deal flow has crept to a halt despite the industry’s unusually deep pockets. Once the economy revives, however, a panel of Wall Streeters predicted it will be up, up and away for M&A.
“All companies are tightening their belts … they are sitting on a lot of cash. So at one point M&A will come back,” said Jonathan Miller, co-founder of investment fund Velocity Interactive Group and a former chairman of AOL.
That goes for the biggest digital players as well as media heavyweights like Time Warner, News Corp. and CBS, which have many billions of dollars stockpiled.
The kind of deals may change as companies rethink their business mix.
The traditional media and entertainment conglom, essentially put together by acquisitions, thought it needed film, TV and print — or some variation of that, Miller said, speaking at the McGraw-Hill Media Summit in Gotham. “I’m not sure that’s going to continue to hold. We’ll see new portfolios. What kind of things do you have to have to be a successful, integrated media company?”
That’s the very question that’s been befuddling media CEOs for the past decade as the landscape started to shift.
“Maybe the digital companies … will be the ones doing the acquiring,” Miller said.
It happened once before with disastrous results. Perhaps in a more mature marketplace such deals would work out better than did the ill-fated 2001 marriage of AOL and Time Warner.
There likely won’t be any big moves until there’s more clarity on advertising and other revenue streams media companies live on.
Richard Bressler, managing director of Thomas H. Lee Partners and former chief financial officer of Viacom and Time Warner, said the ad market over the last month to six weeks “doesn’t appear to have gotten worse. That doesn’t mean it’s not still bad. It could be a false bottom.” The buyout firm, whose holdings include Clear Channel and Univision, is heavily invested in media.
The lack of visibility has made it all but impossible to set prices for deals, even for companies that might be persuaded to part with some cash.
“The sellers think things are worth what they were worth a year ago. Buyers think they’re worth half as much,” Miller said.
Stock deals, in particular, are all but impossible with media shares battered to dramatically, and undeservedly, low levels.
“If you believe in the world returning to some semblance of normalcy, then the value of media companies is at bedrock. It’s like you don’t even think they are going concerns,” Miller said.
Walt Disney, Time Warner and News Corp. have lost at least half — in some cases considerably more than half — of their value over the past year alone. CBS, the company most exposed to advertising, has plunged to about $4 from its 52-week high of $25.
The venture capital market is also frozen. Most startups have traditionally needed multiple rounds of financing, which is all but impossible to find.
“Now, if you need multiple rounds, no one looks at you,” Miller said. “As an investor, you have to assume no other investor might come in. You might have to carry it yourself.”
The markets await a catalyst to release all that cash, the investor panel agreed, and ultimately it will most likely come from government spending. The Obama administration has been pouring money into the banking systems and across industries. This week, the Federal Reserve agreed to inject another $1 trillion into the economy.
Once things loosen up, everyone will jump in — corporate players alongside the private equity firms that had dominated the last round of media deals by snapping up everything from film studios to Spanish-language broadcasters. For many industryites, having actual strategic buyers back in the mix will be a welcome change.
Bressler, however, defended the buyout firms, which he said “came in when no one else would” to buy struggling businesses.
“It’s not a big bogeyman,” he said.