Investment banker Kevin Covert is increasing staff at his company, Covert & Co, up to prepare for an M&A bonanza in Silicon Valley. He says that the conditions are great for M&A especially in new media.

Mr Covert lives in southern California but he is no stranger to Silicon Valley, having been very active here, founding investment bank Montgomery & Co in 1999, in the middle of the dotcom boom.

Over the past ten years he’s had a hand in many large deals such as selling MySpace to News Corp, plus also raising money for many companies, such as Meebo.

Here are some notes from our meeting:

– There isn’t a bubble forming but there is a wave happening in valuations, I prefer “wave” to “bubble.”

– The high valuations in the secondary markets of the tech high flyers are getting out of hand. But they are good for smaller companies. They can say, “Look at Facebook, we are much better but at a fraction of their valuation.”

– The conditions for M&A are very good right now because there has been a log jam over the past two years that needs to be cleared.

– The last recession wasn’t caused by tech, it was caused by the financial services sector. Tech was doing very well before the crash.

– Buyers are now flush with cash, they’ve restructured, they have new management teams looking for growth and acquisitions.

– I work mostly with sellers, I have great contacts with large media companies.

– There a lot of companies that have reached the stage where they need more capital to reach the next stage of their expansion. IPO markets are still tight so that’s not an option. And VCs are careful with their money, they aren’t throwing it around, so an acquisition is often their only option

– The dotcom boom saw the rise of e-commerce, Amazon, eBay, etc., This time it’s the content that’s important, video, music, it’s the media that’s important and that’s where the majority of the M&A will be.

– I see a steady increase in M&A over the next three years in a straight line but I don’t think we will see a hockey stick.

– M&A is good for innovation, it puts money back into the system.

– I agree with you that Silicon Valley has gradually become a “media valley” with Facebook, Twitter, Google, etc, being technology enabled media companies.

– We are still in the early stages of the Internet and the build out will continue to happen well beyond our life span.

– Deals are gradually picking up in Southern California, and the Angel community is investing in interesting startups. But we don’t have the same environment as Silicon Valley, with lots of people leaving successful companies to new startups. But things are improving.

– We want to become the “eHarmony” for sellers, matching them with our contacts at large buyers.

[Cross-posted at Silicon Valley Watcher]