Concerns about a credit crunch and further erosion of mortgage related securities may put a damper on debt based private equity deals, notably leveraged buy outs (LBOs) but it remains to be seen if the related interest rate and capital allocation costs will impact cash based or corporate deals. It’s actually even possible that they’ll increase the rate of corporate transactions (as private equity deals slow and sellers consider alternate buyers).
In the media industry, NBC Universal apparently isn’t concerned. According to rumors first reported Sunday, and now confirmed, NBC will go ahead with a buyout of international television player Sparrowhawk Media.
Sparrowhawk Media is owned by Providence Equity Partners and 3i. It is a holding company that was formed during a buyout in 2005 to be a management vehicle to house the international division of TV’s Hallmark Channel along with a made-for-TV movie channel called Movies24 and a stake in KidsCo (a three-way joint venture bringing children’s television programming to Eastern Europe).
(Interesting Side Note: Providence is an active media investor, and already a partner with NBC in other ventures. Earlier this month, they made a sizable outside investment in NBC and News Corp’s joint Venture NewCo)
Sparrowhawk purchased the international assets from Crown Media Holdings in 2005 for about $242m. The deal, and this one, also includes the International rights for the Crown Media Library and the company’s Broadcast Services Group which runs a Network Operations Center from Colorado that is capable of broadcasting 32 digital channels in NTSC (US) or PAL (Europe) formats. Sparrowhawk currently broadcasts about 18 channels.
The equity firms had been shopping the company, in whole or its parts, for about 9 months. There were reportedly other buyers but the nature of credit markets did, apparently, have an impact. Sparrowhawk’s Chairman, David Elstein, noted “This is not a good moment for a private equity transaction because of the nature of debt markets … trade players didn’t seem to have a problem with cash."
Rumor has it, NBC Universal will pay in the range of $350m.
For NBC Universal, in one swoop, the deal could be a quick booster shot for CEO Jeff Zucker’s plans to increase international revenue. Hallmark’s international reach crosses continents and touches Europe, Africa, the Middle East and Asia. The UK channel already caries NBC Universal shows like Law & Order.
With international media growing at a faster rate than in the U.S., and a desire to grow international income by a factor of 2x within three years, this deal, is a significant land-grab.
Stating the obvious: "This is an important move for us to grow our international business," NBC Universal Chief Executive Jeff Zucker said in an interview.