Dealing with the media

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Peter Einstein

In the first half of 2007, the global Technology, Media and Telecom (TMT) sector witnessed 399 Merger and Acquisition (M & A) transactions with a total value of US $76 billion. The sum of all TMT transactions in 2006 was just over $60 billion.

In the meantime, Private Equity bidding wars have been filling business pages all over the world. The deals they are involved in are growing larger and their targets increasingly high profile, with media companies proving more popular. Some view them as asset stripping vultures; others praise their ruthless but efficient management practices.

However, little of this intense activity has occurred in the Middle East so far, says Peter Einstein. The former CEO of Showtime Arabia and his new business partner, Brian Pohl intend to change that with their new company, Einstein Media Capital Partners (EMCP). The firm will offer consultancy on both private equity and M & A deals as well as making its own investments in the TMT sector.

Despite the lack of action in the region, Einstein does not believe there is a lack of interest in such deals.

"Investors find TMT seductive and they want to get involved in the sector but what they don't understand is ‘if I put my money in, how do I get it out?'" explains Einstein. "People understand bricks-and-mortar and things you can touch and feel but TMT is much more ‘soft'. You need to understand these businesses in order to see their true worth. There's plenty of value in these companies that develop media properties or technologies."

Einstein's partner, Pohl, who is a former venture capitalist and fund manager, agrees: "There are people here who have capital to invest, but don't understand what this ‘soft' media stuff is. For us, it's about helping them understand the framework that fits around these investments. With real estate, you don't put a building into your wallet. You take a stream of cash from rental income or by selling off the apartments inside. It's the same thing with the media: take a TV programme, the aim is to turn that from nothing but some ones and zeroes on a disc into a stream of cash by selling the content, through advert space or by creating a new TV channel. This is about educating the market."

But will media savvy investors from more mature markets in the West bring their funds to the Middle East? Einstein believes they will.

"There's a lot of capital here available for investment; we don't need to go to the US or to Europe to bring money in." says Einstein. "Having said that, we have talked to companies from these other territories that have money to invest over here. They like the sector and the region, but they say ‘we understand media, but we don't understand media in the Middle East'."

Over the past ten years, the broadcast industry has experienced rapid growth throughout the region. There is a distinct difference between growth and development, however, and progress, from a business point of view, may not involve the creation of even more channels.

"The market place right now is not too deep. This part of the world has 400 TV channels and the resources are spread so thin that lots of them are not really satisfying consumers," claims Pohl. "Many are vanity creations; ‘I'm gonna create this station because this is what I want to watch'. In the meantime, that ad space could be supporting someone who has a really creative product.

"Realistically, I would say the market can support 100 of those channels. If you took all those resources and picked one station of every four, think what they could do with quadruple the ad revenue? And this comes back to, how these deals could benefit the companies," Pohl continues.

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