Convergence & Digital disruption pull for M&E M&As

14 Feb,2017

 

The Mergers and Acquisitions (M&A) outlook for the media and entertainment (M&E) sector is being driven by sector convergence and digital disruption, according to EY’s 15th biannual Media & Entertainment Capital Confidence Barometer (CCB). Sector convergence is the greatest disruptor to M&E businesses, according to 31% of executives surveyed.

 

Digital remains at the heart of corporate strategy in the sector. Nearly a third (31%) of the executives saw the impact of digital technology on the business model elevated on the boardroom agenda over the past six months, notes the report.

 

In India, M&A activity in the media and entertainment sector registered a total of 56 deals with cumulative disclosed deal value of US$1.8 billion in 2016, as against 56 deals with a total disclosed deal value of US$1.2 billion in the previous year. The largest deal of the sector was US$1.2 billion merger of Dish TV and Videocon D2H, which signals that consolidation is the way forward in the DTH space.

 

Said Ajay Shah, Partner – Transaction Advisory Services, Media and Entertainment, EY India: “During the year, digital marketing players were also high on the M&A radar, as media and e-commerce companies acquired them to gain technological capabilities and target consumers with customized advertisements. TV Broadcasting was another hot segment as players in the industry made acquisitions to strengthen their presence in the rapidly growing segments of entertainment.”

 

In response to both sector convergence and digital disruption, M&E executives are seeking out cross-sector opportunities. Sector blurring — companies making increasing and deeper incursions into adjacent or unrelated industries — has become a prominent feature of the current M&A market. The strongest driver of cross-sector deals, according to 67% of executives, is access to new technologies/digitalisation.

 

More than half (56%) of industry executives expect to pursue acquisitions in the next 12 months, up from 46% six months ago. This appetite for dealmaking remains well above CCB’s long-term average of 45%, pointing to an upturn in M&A in the first half of 2017. Executives also expressed a high level of confidence in key deal indicators. Ninety-two percent indicated stable-to-positive confidence in the number of acquisition opportunities, 85% in the quality of acquisition opportunities and 94% in the likelihood of closing acquisitions.

 

While 73% of executives see the global economy as stable (53%) or improving (20%), macroeconomic risks still exist. The rise of populist parties across the globe has become a rising concern for executives. Twenty-seven percent regard political instability as the most important risk to their business in the next year; however, this is not causing M&E companies to slow down cross-border investment.

 

The report shows that companies are expanding geographic reach in order to gain exposure to high-growth regions and under-penetrated markets. Forty-two percent of executives are targeting a cross-border acquisition in the coming year. The Top 5 destinations for 2017 will be the US, France, the UK, Germany and China. Last year, before Brexit, the UK was number one, finds the report.

 

The EY Global Capital Confidence Barometer is a biannual survey compiled by the Economist Intelligence Unit of more than 1,700 senior executives from large companies around the world and across industry sectors. This is the 15th semi-annual Barometer in the series, which began in November 2009; respondents for the 15th edition were surveyed in August and September 2016, 50% were CEOs, CFOs and other C-level executives. The objective of the Barometer is to gauge corporate confidence in the global and domestic economic outlook, to understand boardroom priorities in the next 12 months, and to identify emerging capital practices that will distinguish those companies building competitive advantage as the global economy continues to evolve. In this survey, there were 66 respondents from media and entertainment companies.

 

A full copy of the Media & Entertainment Global Capital Confidence Barometer, can be accessed at: ey.com/ccb/mediaentertainment

 

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