Nearly all current conversations with our clients, most of whom are based in the media/communications sector, focus on a return to liquidity in the transaction market. This will be the time when an active market between buyers/sellers exists and sufficient senior and subordinated debt is available to finance a significant portion (50-60%) of purchase price. In my opinion, it is the lack of available debt, more so than lack of interested equity or interested and motivated sellers (we are having conversations with both potential equity investors and potential sellers), that has been stalling media/communications transaction flow the past several quarters.

But it is hard to blame the banks/finance companies for this, as through q4 2009, there hasn’t been evidence that the long-awaited operations turnaround in advertising-driven businesses has taken shape. My prediction: as soon as companies can present a quarter that is positive revenue/EBITDA, and have pacing showing a second positive quarter, then banks/finance companies will begin to again make debt available. My second prediction: these two quarters will be Q1 and Q2 2010, not necessarily driven by dramatic turnaround, but by a pretty low bar being set from 2009 results.  We are seeing continuing evidence that advertising trends are improving through Q1 and expect the majority of media operators to report mildly positive results this quarter.  Yes, the banks/finance companies still are holding many troubled credits in these industries, but they are also under pressure to begin making new fees again. Subordinated debt remains scarce in the media industries, although my colleagues at BIA Digital Partners, BIA’s mezzanine debt fund, are still seeking to put out this type of funding to the media/communications industries.

What happens in 2010 in media/communications sector?

My prediction (with pressure of creating a written record!): as debt again becomes available, smart new equity players enter the market and buy properties at very attractive prices (not necessarily low EBITDA multiples, but low prices, off of low EBITDA base). These equity players, generally not encumbered by existing media assets purchased at higher levels, correctly recognize that while a correction has taken place and that the media industries will likely not return to rapid growth, there remain underlying industries with strong consumer reach and free EBITDA generation capability. Debt providers who initially provide capital to these industries make attractive fees/spreads before other banks inevitably rejoin.

Periodic updates to follow.