Weak Ad Growth Boosting European Media M&A Activity
With generally sound capital structures but weaker advertising growth likely over the next two years, media groups could be tempted to prop up their share prices by renewing M&A activity and/or shareholder-friendly distribution policies, according to Standard & Poor’s.
In a new Industry Report Card, S&P says a “perfect credit storm” scenario for 2008 could see media companies allocating a large part of their discretionary cash flows to shareholder distributions, while also pursuing consolidation opportunities at a time when falling consumer confidence may push companies to rein in advertising spending.
The sizable M&A deals pursued by European media companies since early 2008 fuel our concerns on balance sheet discipline in a tougher economic environment.
The very recent fall in French and German consumer confidence, despite better-than-expected GDP growth figures, should act as a warning signal to companies that are considering M&A and/or greater shareholder distributions, S&P says.
Companies covered in the Report Card are advertising agencies Publicis Groupe and WPP Group; TV broadcasters Antenna TV, BSkyB, Central European Media, CTC Media, ITV, RTL Group, Television Francaise 1, TVN; publishers Bertelsmann, Daily Mail, Gruppo Editoriale L’Espresso, Pearson, Reed Elsevier, United Business Media, Wolters Kluwer; classified directories SEAT PagineGialle, TRUVO Intermediate, Yelle Group; outdoor advertisers JCDecaux, Rapsod Trade; and diversified media companies OJSC RBC Information Systems and Vivendi.
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