PE firms lose bid on knight ridder, still Like media

Last week’s announcement that The McClatchy Co. (NYSE: MNI) agreed to acquire Knight Ridder (NYSE: KRI) for $6.5 billion in cash and stock was bad news to a consortium of private equity firms – which included Bain Capital, Oak Hill Capital Partners and Texas Pacific Group – that bid for the media giant.

But it was also a sign that PE firms consider big media deals to be an investment worth pursuing, as various industry forecasts expect 2006 to be a busy year for media M&A deals.

Baran Rosen, president of Whitestone Communications, an M&A advisory firm that focuses on media deals, says that PE firms will continue to be strong media buyers, and will probably account for between 40% and 50% of media M&A spending this year.

“The private equity firms are definitely spreading their wings, showing they will step up and do major deals in the information business,” Rosen says.

Current activity suggests that 2006 will have the highest deal activity in at least the past six years in the U.S. entertainment and media industry, according to a study by PricewaterhouseCoopers,

PwC’s study says that private equity is active across all sectors of entertainment and media and that PE firms financed nearly one-fourth of all entertainment and media deal value.

The PwC study says that deal activity will continue to be promoted by continued growth of dedicated media private equity funds, large funds growing larger and making media sectors an investment priority and private equity interest expanding beyond traditional publishing and broadcasting sectors.

“If you think about the stuff going on in radio, yellow pages and newspapers, the debt is plentiful and there are great stable cash flows. It’s exactly the kind of business you want be in from an LBO point of view,” says Jay Jester, a managing director with Audax Group.