Why major media will quickly resume buying innovative companies

The latest research from specialist investment bank Jordan Edmiston shows that M&A activity in media, information, marketing, and technology sector fell by over 90% year-on-year in first quarter 2009. While the figure seems dire, much of this is due to this being a phase of rapid price adjustment, as Jordan Edmiston points out. First valuations at new levels need to be clarified by further transactions.

The chart below shows the most active strategic acquirers over the last five years in the sector. Some of these – such as Thomson Reuters, Reed Elsevier, and WPP – will continue to be very active in years ahead. Other companies will start acquiring more rapidly.

I’ve written numerous times about where exits will be for start-ups. Two factors will continue to drive a very healthy level of strategic acquisitions over the long term.

The first is continuing rapid shifts in industry boundaries, meaning companies continually need to reposition themselves, and are rarely able to do that organically at a sufficient pace. The second is that the pace and quality of innovation within any large company will never sustain organic growth, and that innovation will need to be bought from outside.

Exits are tough today, but there will be plenty in coming years.