The attempted takeover of ITV may have failed, but the affair has thrown the increasing activity of private equity groups in the media sector into the spotlight.
Venture-capitalist interest in media is nothing new, with independent TV production companies such as Shine, All3Media and Hit Entertainment, as well as publishing houses such as John Brown Citrus, attracting investment from private equity groups over the past few years. The explosion in demand for content, especially in new media and mobile, and the transfer of intellectual property rights from broadcasters to production companies have fuelled interest. Also, the hangover from the dotcom crash of 2001 has meant there are fewer trade buyers for media assets, opening the door for venture capital interest.
According to 3i, one of the world's biggest venture capital players, private equity featured in nearly one-third of all European media mergers and acquisitions last year.
One interesting thread is the re-emergence of media's gorillas from the mist. Greg Dyke, Tony Ball, Tim Schoonmaker, David Montgomery and David Mansfield are all assuming new guises as private equity-backed investor-predators. Andrew Neil also wants to get in on the action, with a new £30 million media investment fund, World Media Rights.
So, which names are you most likely to see whenever a media property is in play? Here's a run-down of some of the usual suspects, as well as new vehicles driven by familiar faces.
1Apax Partners joined forces with the investment bank Goldman Sachs and the US venture capitalist The Blackstone Group to mount its unsuccessful £1.3 billion bid for ITV. It has one of the biggest and longest-established media teams, including the former OnDigital and Telegraph boss Stephen Grabiner, the former media analyst Neil Blackley and Dyke. Apax's biggest UK deals to date are the £489.4 million acquisition of the Bob the Builder producer Hit Entertainment last year, and its 1997 backing for Ginger Media Group's acquisition of Virgin Radio for £115 million.
2The ex-BSkyB chief Ball is set to make a comeback, as the chairman of Ingenious Media Active Capital, a vehicle with £150 million to spend in its first year. IMAC is backed by the media finance and consultancy company Ingenious Media, headed by the former Really Useful Group boss Patrick McKenna. IMAC had originally expected to raise £250 million, but investors capped the amount lower with a view to spending the capital in its first year. The fund has already invested a seven-figure sum in Gorgeous Entertainment, an indie launched by the former chief executive of Initial, Malcolm Gerrie. IMAC is expected to put talent agencies at the top of its shopping list, but it is also eyeing UK businesses in the TV, music, mobile and video games sectors.
3The former Mirror Group chief executive Montgomery is hoping to build a European newspaper empire through Mecom, which he formed in 2000. The group claims to have £350 million available for European media investment and has bought the German newspaper group Berliner Verlag for around £10 million. Montgomery is also planning a takeover of the Dutch regional newspaper group Limburgs Dagblad, costing Mecom more than £100 million.
43i invests around £1 billion a year. Its European media team, led from the UK by Crevan O'Grady, has completed 24 deals in the past five years. These include the £65 million trade sale of Northern Ireland's Local Press Ltd newspapers and a £127 million investment through Sparrowhawk Media, the group led by the for-mer Channel 5 boss David Elstein, in Hallmark's international TV business.
5The European private equity giant Bridgepoint focuses on marketing services, publishing and broadcast. In broadcast, it is becoming increasingly influential via its £45 million investment in All3Media. All3Media, which has acquired Mersey TV and Lion TV, is now the biggest independent producer in the UK, with revenues of £157 million. Bridgepoint's backing of the £20 million management buy-out of John Brown Publishing (now John Brown Citrus Publishing) helped it become the UK's biggest contract publisher by turnover.
WHAT IT MEANS FOR ...
THE FUTURE OF PRIVATE EQUITY MEDIA DEALS
- The failure of private equity investors to grab the likes of ITV, GCap and Northcliffe shows they are struggling to land the big fish. This is because in order to raise the funding they need for a takeover, venture capitalist bidders need to conduct due diligence on their targets - something those targets won't let them do unless they go hostile. And they can't get the money to go hostile without due diligence. Dyke and his team's inability to launch a hostile bid enabled ITV to swat them away.
- Analysts argue that, while markets remain strong and boards confident, private equity bids for big media targets will continue to struggle. But, if share prices tumble and interest rates - the cost of debt - don't rise, then the boards will feel less able to slam the door on private equity approaches. The balance of power could quickly change, and in the cyclical media market, change is never far away. If markets begin to fall, analysts suggest the Dyke/Apax bid for ITV could be a taste of things to come.