India #4 in EY’s Most Attractive Nations for M&E Investment

09 Dec,2015

 

By A Correspondent

 

It’s India Shining in the world order. At least for the Media and Entertainment sector. According to consulting firm EY (eka Ernst & Young), India ranks fourth in the most attractive nations for investment. This coupled with the fact that espite the usual industry challenges and downside risks, the media and entertainment (M&E) sector has a high level of confidence in the global economy. EY recently survey senior executives from global M&E companies for the 13th Global Capital Confidence Barometer which was released on Monday.

Specifically, this is what the EY report says on India:

Even as the outlook for many emerging markets turns negative, investor sentiment toward India is seeing a significant recovery. The Indian Government’s pro-business stance and an increasingly promising economic outlook are fostering a more attractive investment landscape for inbound investment.

Several government initiatives, including the digitisation of cable television, the Phase III auctions of FM radio spectrum and an increase in FDI limits, are expected to drive growth in traditional media. India is also the second largest internet market after China with over 300 million internet users. Although digital content consumption is currently tempered by low smartphone and broadband penetration, a surge in broadband adoption is expected with the rollout of 4G services and the government’s Digital India initiative.

While the ubiquity of media consumption has not yet translated into significant industry revenue – by 2016, India’s online advertising market is forecast to be a little more than  US$1 billion, while the forecast for China is in excess of US$23 billion –  India is expected to become the third largest economy in the world by 2030 after the US and China.

With a triple fold increase in GDP expected over the next 15 years, M&E industry revenues and their contribution to the GDP are expected to increase significantly.

India has seen some big M&A deals in M&E in 2015. The key ones being:

Deal Type

Announced Total Value (USD Mn)

Target Name

Acquirer Name

M&A

417

MAA Television Network Star India

Pre-IPO

273.4

Videocon d2h Silver Eagle Acquisition Corp

Private equity

166.5

Prime Focus – Reliance Mediaworks merger

M&A

110.8

Reliance MediaWorks -BIG Cinemas Carnival Films

M&A

(Closure pending)

78.1

DT Cinemas PVR

When asked their perspective on the state of the global economy, 81% of executives said it is improving, up from 52% one year ago. Executives surveyed maintained an overall positive attitude, indicating an improving level of confidence in corporate earnings (64%), short-term market stability (83%), credit availability (77%) and equity valuations (56%).

 

Says John Harrison, Global Media & Entertainment, Transaction Advisory Services Leader at EY: “Media and entertainment executives are more confident about the global economy and key market indicators than 12 months ago. However, short-term headwinds, such as foreign currency volatility and earnings pressure from digital transformation are tempering enthusiasm. As the industry learns to better harness digital adoption and fully exploit the multiplatform distribution environment, companies are becoming more confident about expanding their offerings and making strategic acquisitions that will improve their competitive advantage.”

 

When assessing economic risks to their businesses, executives indicated increased volatility in currencies to be the greatest, (36%), followed by slowing growth in key emerging markets (23%), the economic and political situation in the Eurozone (20%), increased global and regional political instability (14%) and timing and pace of interest rate rises in the US (7%).

 

Executives surveyed overwhelmingly expect the global mergers and acquisitions market to remain strong in the year ahead, with 73% indicating it will improve (up from 49% last year), 24% saying it will remain stable and 3% saying that it will decline. When asked if they expect to actively pursue acquisitions in the next 12 months, 59% responded favorably, which is more than double from two years ago when only 25% indicated they were going to actively pursue acquisitions. While the number of M&E companies expecting to pursue an acquisition in the next 12 months is the highest it has been in two years, only 44% of respondents are optimistic about the likelihood of closing acquisitions. This is possibly a result of the perceived valuation differential between sellers and buyers increasing in the past six months.

 

Target deal sizes are moving higher, with 22% of respondents indicating that their largest planned acquisition size in the next 12 months will be greater than US$250m. While a majority of acquisitions are expected in the US$250m or less area, the trend since last year is toward more substantial deal sizes.

 

Confidence in corporate earnings is more measured, possibly a result of foreign currency volatility as well as structural challenges facing the M&E industry from digital transformation.

 

Other key findings of the report include:

  • Digital continues to have the greatest impact on M&E companies’ core business and acquisition strategies.
  • Foreign exchange volatility is causing concern as a lot of costs are US-dominated and revenue is increasingly international.
  • Structural challenges related to digital adoption persist, which, along with foreign exchange fluctuations, is having a near-term impact on corporate earnings.
  • Respondents are most likely to invest in China, the US, the UK, India and Australia.
  • 58% of executives said that their company’s focus during the next 12 months will be cost reduction and operational efficiency, followed by growth at 28% and maintaining stability, 14%.
  • Strategic divestment and other potential portfolio actions are moving higher on the boardroom agenda as media and entertainment companies seek to optimize capital allocation to thrive within a fast-changing world

 

The report is a survey of senior executives from large M&E companies around the world that gauges corporate confidence in the economy, identifies boardroom trends and provides insight into companies’ capital agenda.

 

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