Cable M&A Market Might Heat Up: Panel

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As the mergers and acquisitions market begins to show signs of life again, cable networks are likely to be the most popular targets for financial and strategic players, an industry panel said last week.

At the Advertising Week conference last Tuesday, Thomas H. Lee Partners managing director Richard Bressler touted cable’s dual revenue stream of advertising and affiliate-fee revenue as a big selling point for potential buyers. But he added an even bigger factor has been the rebound in the debt market, which will go a long way toward helping to finance deals.

“The liquidity in the debt markets is incredibly deep,” Bressler said.

While several cable-network chiefs have recently said they are seeing signs of an ad-market rebound — last week News Corp. chairman Rupert Murdoch said it has reached bottom — Bressler was a little more cautious.

“We are starting to see it [ad spending] getting better. We are seeing some positive signs and, at the same time, people are making spending decisions with a shorter lead time,” Bressler said.

At Bain Capital, which includes cable-network investments like The Weather Channel in its portfolio, managing director Ian Loring said his firm continues to focus on cable networks, outdoor advertising and radio, mainly because they concentrate on targeted advertising. That ability to target specific demographic groups is what makes cable especially attractive, he added.

“For advertisers, it represents a targeted form of reaching your customers,” Loring said. “And they [cable networks] have captured a lot of the share of viewers.”

Loring agreed that the ad market is showing some encouraging signs and though it probably will never return to its heyday, companies “still need to reach their customers.”

At venture-capital giant Kleiner Perkins Caufield & Byers, the outlook is a little different. Partner Aileen Lee said that VC deals usually include a small amount of debt, so the rebound in that market is not expected to have a major impact on deals. However, she does believe that the field of VC firms will dwindle over the next few years.

Lee said it has been especially hard for firms that go out to raise $300 million to $500 million at a time for investments.

“There’s a funding cycle that has been going on over the past year where a lot of firms have had a hard time raising their money,” Lee said. “As a result, there will be a shrinking in the venture-capital market and there will be fewer companies funded.”

But at the same time, Lee said the market for initial public offerings — one of the main exit strategies for VC firms — is expected to heat up next year.

“In our portfolio, we actually have a number of companies that are starting to talk about going into registration for public offerings in 2010,” Lee said. “Some healthy public offerings in 2010 will spur some renewed optimism in the markets.”