Two investment bankers report third quarter M&A activity.

Newsletter and directory merger and acquisition activity continued to be anemic in the third quarter of 2002, according to the investment banking firm of Whitestone Communications, which tracks the pace of deals for its publication, Who's Buying Whom.

"The economic recovery appears to be missing in action," Whitestone associate Jennifer Lindenman said. "If the economy picks up, newsletter and directory publishers will start to see improved bottom lines, leading more of them to consider selling."

The number of deals in the third quarter was five compared to seven in the second quarter. Activity in both these quarters was below the approximately ten deals per quarter that were completed in 2001 and ten to 20 deals per quarter in 2000.

Whitestone reports that the value of acquisitions was about $21 million in the third quarter 2002. The largest deals were two acquisitions by infoUSA as it bought Hill-Donnelly Directory Company and City Publishing--both cross-reference directory publishers.

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Jordon, Edmiston: "Substantial confusion in the marketplace"

The Jordon, Edmiston Group Inc., "Investment Bankers to the Media and Information Industries," also reports that the Directory and Reference Publishing sector was the strongest category in the third quarter "in both number of deals and total deal value."

Claudia Flowers, vice president for marketing and communications, said, "Overall, there is substantial confusion in the marketplace about where we are in the current economic cycle and where we're headed in the months ahead. From a macroeconomic point of view, economic signals remain mixed, and there is no consensus among economists regarding near term growth.

"... On the micro level, M&A conditions for publishing and information businesses have been challenged. In the past month or so, however, we've sensed the beginnings of a shift in the marketplace. Some sellers are eager to get on with the retooling of their portfolios in anticipation of a market upturn later this year or early in 2003," Flowers continued.

"On the buy side, we see another driver of increased M&A activity: strategic buyers are finished with cost-cutting initiatives and are faced with challenging conditions in 2003 for organic growth. We see them getting more active on the acquisition front, as a way to grow their top and bottom lines.

"And, if the private equity firms targeting these sectors rein in their ROI expectations to more reasonable levels, it will add further energy to the marketplace.

"Putting all these factors together," Flowers concluded, "we expect to see an increase in the pace of M&A activity in the fourth quarter, with values moving up only slightly from current levels."

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