The latest issue of Businessworld magazine has a cover story on the heightened deal-making in the media and entertainment sector in 2005.
Here's my take on the Private Equity action in the Media & Entertainment sector (some parts of which were featured in the Businessworld article):
For almost three years since the 2000 downturn, PE and VC firms focused whatever little investments they were making into the Information Technology and BPO services sectors. The media & entertainment sector, which was reeling under the impact of the sharp decline in advertising spends, never got a dekko.
September 2003 witnessed two major investment announcements in the media & entertainment sector: Henderson Global Investors' $27.8 million investment in HT Media for a 20% stake and ICICI Ventures' $22.2 million buyout of the Tatas 50% stake in Tata Infomedia. HT Media went on to raise a further $15.3 million from CIFC (a part of Citigroup) and Henderson in October 2004 - the only significant media investment by PE firms in that year.
A key factor in driving investments by PE firms is how successful they would be in finding profitable exit routes – either via an IPO or the acquisition of the investee company. 2004 was a great year in this respect with private equity firms exiting their investments in as many as 30 Indian companies across all sectors, six of them via IPOs. The biggest media sector exit during the year was New Delhi Television’s $24.5 million April IPO which provided an exit route for its PE investors including Goldman Sachs, Saffron Fund, JF India Fund, JP Morgan and SBI Capital Markets. Infinity Ventures and IL&FS VC exited their investment in gaming software firm Indiagames when China-based TOM Online acquired an 80% stake in the company for $17 million in December 2004.
Talking of exits, the August 2005 IPO of HT Media is likely to be a major milestone for PE investments in the sector. Henderson has already realized its original investment via the 5% stake it sold via the IPO. Any sales of its remainder shares (it is estimated to own about 10% stake post IPO) above the IPO price will be pure profit. Canadian PE firm CDPQ too obtained an successful exit for its investment in UTV Software Communications via the company's $20 million March 2005 IPO.
Catalyzed by these successful exits, 2005 is turning out to be a blockbuster year for media sector investments: UK-based PE firm 3i's $45 million investment in Nimbus Communications in August 2005 follows BSMA and Arisaig Partners’ $12 million investment in Adlabs Films (April), New Vernon Bharat's $7 million investment in Jagran TV (May), Kerala Venture Capital Fund's investment (amount not disclosed) in Film and TV production firm Symphony Entertainment (June) and Americorp Ventures' acquisition of a 9.33% stake in TV broadcasting firm Asianet Communications for a undisclosed amount (March). Add to this Reliance Capital's $83.7 million strategic investment into Adlabs Films in July, and it is clear that a major party is on. So much so that some US VC investors are now actively looking for investments in Internet media companies – something considered a downright bad word just two years ago!
Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.