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Online Media M&A Market Made Big Jump in 2005

The number of mergers and acquisitions surged across the media and information industries in 2005, reaching levels not seen since 2000, according to the Jordan Edmiston Group (JEGI), an investment bank specializing in midsize transactions in the media and information industries. JEGI said M&A activity was especially high in the online sector.

With 525 deals completed, valued at $56 billion across 11 sectors, major media companies continued to play the biggest role, expanding and pursuing growth through acquisitions. Changes in media consumption led to increased investment in digital technology, according to the report.

One third of the total deals in 2005 occurred within the online media sector as traditional media and new media companies looked outward to increase revenues and remain relevant as more moved business and eyeballs across the Internet, according to Tolman Geffs, a managing director of online media with JEGI. Deals in the online sector were worth $15 billion, double the 2004 deal total.

In 2004, the majority of acquisitions were done by larger companies like Yahoo and Google ," Geffs said. "In 2005 the majority of deals were done by diversified media groups."

Some of those groups, including Gannett, New York Times, Dow Jones and News Corp., will continue to acquire fast growing online content and delivery channels in 2006 to offset pressure on their traditional media products, Geffs said.

Of the top ten deals, two were online media plays with IAC/InteractiveCorp's buy of AskJeeves clocking in at number four at an estimated $1.85 Billion. Alibaba's grab of Yahoo China was number ten at $1 billion.

Although there was less action in 2004 and early 2005 in pure online content and audience businesses, more and more private equity buyers realized the online content business has been gaining momentum, said Geffs.

"People began to understand online publishing could generate more revenue from online eyeballs than the cost of audience acquisition," he said.

"Looking into 2006, we expect to see much more activity in the sale of mid-sized online content and audience businesses, especially video," Geffs said.

Along with these continued changes in the media landscape, attractive lending multiples, strong corporate balance sheets and historically low interest rates propelled the M&A market. The large cash positions available for investment accumulated by private equity firms also contributed to the seller's market conditions, according to Geffs.