Credit Crunch May Cool M&A Deals

A report issued recently by the investment banking firm Berkery, Noyes predicts that prices paid for companies in the information, media and technology segments will weaken a bit in 2008 compared to 2007. Problems in the mortgage markets and an oversupply of leveraged loans created liquidity difficulties in the second half of 2007, and those two issues will likely remain throughout a good part of 2008, the report says. As a result, private equity firms are expected to be less aggressive in the mergers and acquisitions field, especially in terms of pursuing large deals, and instead will focus on acquisitions in the $25-million to $500-million range to round out their portfolios.

The negative impact caused by mortgage and leveraged loan concerns will be offset by an increase in capital coming into the U.S. from foreign countries, which will inject new cash to back deals. In addition, the low U.S. dollar will encourage foreign investors to acquire American information assets, the report says. Also giving an impetus to M&A activity in the year will be more public companies going private.

In the publishing sector, the report says the biggest deals are likely to involve the sale of print-based publishers that their parent companies believe are not making the switch to online delivery quickly enough, plus more acquisitions of well-known brands that provide cross-platform or cross-market opportunities (a good description of Zagat, which is reportedly up for sale). The report notes that the decision by Thomson Corp. and Reed Elsevier to sell their educational publishing holdings last year stemmed from the same premise—the companies had low perceived growth rates and a slow pace of converting to electronic delivery compared to the parent companies’ other businesses. The report didn’t say who may be interested in acquiring the slow growth print-based firms.