Thursday, November 09, 2006

Cash Cows to Stars

The Economist Magazine carried an article recently about the interest of private equity in the media industry. There have of course been no end of bids for media businesses. Today's FT carries a story about a bid for the Tribune Magazine from Eli Broad and Ron Burkle. Well known private equity firms like KKR and Carlyle have evinced interest, and rather well known media businesses from ITV, Vivendi, and Pearson, have been the subject of such bids.

The reason forwarded is a simple, financial one. Markets need growth, private investors just need the cash. As Bhaskar, the Founder & CEO of Recreate Solutions (now sold to Corpus) told me once, you can either have a growth business or a "lifestyle" business, as an Entrepreneur. Of course, the cash coming out of these businesses may not fund lifestyles but other investments for private equity players.

Some of the other reasons mentioned include (a) better management (b) better access to debt and (c) freedom from the constraints of S-Ox and other strictures of public markets.

Its the last, which needs extension. The reality appears to be that Media businesses don't run very well as publicly held businesses. Decision making needs to be snappy and new opportunities need to be addressed quickly. Moreover, with significant changes sweeping through the business and technological landscape which sometimes questions the very viability of some businesses, it needs the owners to make some big bets on the future of these companies. This is very hard to do for a public company.

However the real value of these businesses may well be more than just the cash cows they are purported to be. These are big brands which over the years have built great consumer value and represent something significan to consumers by way of their propositions. If they could create relevant and new products then they have the brands to deliver these to consumers.



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