Media and entertainment executives remain focused on M&A in 2018, driven by confidence in business fundamentals and the near-term performance outlook, along with a longer-term need to strategically position the portfolio for future growth.
Dramatic increase in dealmaking intentions
In EY’s latest M&A report, Media & Entertainment Global Capital Confidence Barometer, respondents are positive about the M&A market, with 72% expecting it to improve in the next 12 months, up dramatically from 47% six months ago. Respondents also cite strong expectations for deal making, with 60% expecting their M&A pipeline to increase over the next 12 months and 63% expecting a greater number of deal completions, compared with the previous 12 months.
Among midsize and larger media and entertainment companies, the strategic imperative to pursue acquisitions remains strong. Approximately 55% of companies with revenues of $1b or more intend to pursue acquisitions in the year ahead. Generally, media and entertainment companies’ targets today are businesses that add scale, differentiate their content portfolio, or fill gaps in their technology, talent or content.
At the same time, 74% of executives say that their last portfolio review identified an asset to divest. They are looking to shed businesses that no longer fit their core strategy, have slower growth profiles than their core assets or require significantly more capital allocation than core assets.
Confidence in performance
Executives remain highly confident in their current performance — 100% expect improving or stable corporate earnings in the sector. What’s more, 100% also see the global economy in which they operate as stable or improving. From a position of confidence, media and entertainment executives are exercising deal discipline on the buy side and exploiting opportunity on the sell side — engaging more tactically above the fray of heated M&A competition and heightened regulatory and political uncertainty.
Heated competition
The number of media and entertainment executives who see an increase in deal-making competition in this Barometer (88%) has almost doubled in six months — mainly (67%) because of a surge in activity by private equity funds. Three-quarters (75%) say they have failed to complete a deal or have walked away from one in the past 12 months — mainly (61%) because of competition from other buyers or disagreement on price/valuation.
Changing boardroom agenda
Portfolio transformation is the top priority for boardrooms, with 73% of respondents identifying it as one of their top three concerns for the next six months. At the same time, boards’ attention has pivoted somewhat toward increasing economic and political uncertainty (now up 25 points in six months, to 40%), and regulatory and government intervention (now up 18 points in six months, to 21%). Digital transformation and shareholder activism remain important, with 21% and 38%, respectively, of boards citing them as important.
Key highlights of the report:
- All of the media and entertainment executives (100%) see the global economy in which they operate as stable or improving.
- Executives are highly confident in their current performance – 100% expect improving or stable corporate earnings in the sector.
- Executives are positive about the M&A market, with 72% expecting it to improve in the next 12 months, up dramatically from 47% six months ago.
- Deal making competition (88%) has almost doubled in six months — mainly (67%) because of a surge in activity by private equity funds.
- Portfolio transformation is the top priority for boardrooms, with 73% of respondents identifying it as one of their top three concerns for the next six months.
- Divestitures will be a critical component of successful portfolio transformation – 74% say that their last portfolio review identified an asset to divest.
