European M&A activity in the media sector reaches highest level for six years

M&A activity in the European media sector during 2006 reached its highest level since the market's peak in 2000, according to the latest report by accountancy firm PriceWaterhouseCoopers.

The sector saw a 12 percent increase on the number of transactions over £10bn on 2005, while mega-deals such as Valcon Acquisition's £7.7bn purchase of publisher VNU contributed to a massive 75 percent increase on the combined value of deals which rose to £43 billion overall.

However, when the UK market is analysed by itself, the figures tell a very different story. Failed deals such as Permira's £3.5bn bid for record company EMI and NTL Telewest's £7.5bn attempt on ITV took their toll on deal volumes, which remained comparatively static with an increase of just 3 percent. Meanwhile, the aggregate value of deals actually fell by a quarter from £8.2bn in 2005 to £6.2bn.

The UK market was also affected by the limited interest shown by US acquirers towards European media companies last year. The approach of the two dollar pound combined with competition from the Far East meant that US companies spent just £1.1bn in Europe during 2006, despite the largest deal in the online sector going to a US acquirer - E.W. Scripps' £304m purchase of UK price comparison website uSwitch.

2006 saw private equity firms continue to increase their presence in the European media sector, with capital from private equity firms accounting for 44 per cent of the aggregate value of deals. This activity is expected to continue well into 2007, as private equity continues its expansion into areas of the media beyond the publishing sector. As well as making acquisitions, it is worth noting that private equity exits resulted in eight deals over £200m during 2006, with UK firms making up eight out of the top ten private equity exits in Europe for the period.

Analysis by sector showed that dealmakers are keen to gain ground in the fast growing sectors of broadcasting and marketing services, while the printing and publishing industry continues to struggle as traditional advertising revenues feel the pinch from the rise of internet advertising. Daily Mail General Trust failed to find a buyer for its newspaper arm, which had been estimated to fetch around £1.9bn, and the market is now awaiting the outcome of Trinity Mirror's attempt to dispose of the Racing Post and regional titles in the Midlands and South East. Newspaper groups are also continuing to look to the online sector to protect their advertising revenues, with the Irish Times, DMGT and Pearson all featuring as acquirers in the top 10 deals for the online sector last year.

Looking towards 2007, analysts are predicting a better year for the UK, with the major media players set to rebound after a series of 'near misses' during 2006. In the last few days, there has been renewed talk of a takeover for EMI, and an upturn in the UK advertising market bodes well for deals among printing and publishing companies. For Europe as a whole, PWC predict that deal volumes and values should remain constant, forecasting around 175 deals with a combined value of £40bn.

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