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Private-equity expansion in traditional media will be focused on high-growth and high-risk developing markets rather than the U.S., senior executives said Wednesday.
“Media is what we do, and in the last two years we have not invested in newspapers or radio or cable in the U.S.,” said Julie Richardson, managing director of Providence Equity Partners, which was a partner in the acquisition of MGM.
Speaking at the Dow Jones/Nielsen Media and Money conference, Richardson said emerging markets offered higher potential returns.
“One of the things we’ve found that worked really well is traditional media deals in emerging markets. We are seeing real opportunities in high-risk economies, but ones which also promise high growth,” she said, noting Providence’s recent investment in Turkish pay TV platform Digiturk.
That investment was going “gangbusters,” she said. Providence also has made substantial cable investments in emerging markets in Europe.
Media and Entertainment Holdings chairman and CEO Herbert Granath said the changing economic demographics in territories like Eastern Europe made them promising investment targets.
“The economics of these countries that are either part of the European Union or are going to be part of the EU are on the up,” he said, noting that ad spending and per-capita income were attracting global investment.
Granath is vice chairman of Central European media venture CME, which owns commercial-free TV stations in the Czech Republic, Slovakia, Slovenia, Romania and the Ukraine.
Carlyle Group managing director James Attwood said that investment models could translate from country to country.
“It’s not just about looking at developing markets; it’s taking an understanding of the evolution of business models from one market to another.”
Attwood said that in the aftermath of the credit crunch — which has left several hundred billion dollars of unsyndicated loans on the balance sheets of major investment banks — private equity deals would be on a more modest scale.
“We will probably see markets come back in the first or second quarter of 2008, but we will see smaller deals priced at lower values,” he said.
Attwood added that even when deals came back onto the market, the valuations would more likely be what they had been in 2003-05 than in 2006-07.
“The last two years have really been unique,” he said. “Credit costs have been low, and with the banks saying don’t worry about covenants, a lot of risk was mispriced and there was a lot of risk-taking that was untraditional in our market.
“That said, media is still a wonderful arena for private equity to invest in,” Attwood added.
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