NEWS: Hollywood Reporter-New media
Private cash flows freely in new media landscape
By Diane Mermigas
CHICAGO -- The ongoing infusion of as much as $15 billion private equity into new and old media deals will alter some ownership and economic dynamics of an industry that's already being transformed by digital interactivity....
Consummate dealmaker John Malone, chairman of Liberty Media, said "I see this as a real tension between the forms of ownership and the willingness of the private equity world, including the hedge funds, to leverage the bejesus out of things with cheap money and pay top prices, because they can play this game. And the returns on equity can be very attractive," Malone said Tuesday during the Banc of America Securities Media, Telecommunications and Entertainment conference in New York.
"Money is pouring into the private equity world because of that phenomenon. And the corporate world is scared to death of taking risk and going to high leverage. They would rather sit there and pay full tax rate on the margin and produce relatively low ROE (return on earnings)," said Malone, who made himself and other Liberty shareholders wealthy in the 1980s by leveraging the portfolio company's assets and strategic investments.
"There is a real mismatch between what private equity values things at and can value things at, and what public corporations can and do value things at," Malone said.
"In the past, private equity investors generally kept their hands off of the fundamental processes of the businesses they bought into, even though they cut costs. But the search for new business models could see some of these private nonmedia investors playing a larger role in the industry's reconstruction," a prominent executive close to the action said.
"Private investors may not be selling the same businesses in five years that they are buying today in this environment simply because technology is bringing about so much change that ultimately will change some media economics and valuations," one prominent investment banker said. "They will do what they have to do to get a good return on their investment."
Last year, there were a record-high 61 private equity media deals, or 11% of the overall total of 552 equity transactions involving U.S. media concerns. The volume of private equity dealmaking more than doubled from 2002, which was a record year for media deals overall, according to statistics recently compiled by Veronis Suhler Stevenson. The New York-based investment banking firm has private equity investments in all forms of media, with a collective value of $7 billion.
A record one-third, or about $20 billion, of the $60 billion in enterprise value of overall media deals last year was tied to private equity participation, which actually amounted to $6 billion in actual investments, the firm said.
"When you have dislocation and lack of clarity about the future in a mature market, there is usually tremendous opportunity for venture capital and private equity to fill in, take calculated risk, and win," said Dennis Miller, managing director of Constellation Ventures, Bear Stearns Asset Management, is a seasoned media executive with a keen interest in new content and distribution applications. ...