Surge in Media M&A Fuelled by Both Strategic and Private Equity Investors
24 January 2006 - Continued growth is anticipated in the European media mergers and acquisitions (M&A) sector in 2006, according to the latest Media Insights report from PricewaterhouseCoopers Corporate Finance. This follows strong growth in 2005 compared with 2004.
The number of transactions in 2005 was 156, an increase of 61% on 2004 (97 transactions). The total value of these deals also rose by 52% to €24.7 billion as against €16.3 billion in 2004. However, the number of major deals in 2005 was almost level to that of the previous year. PricewaterhouseCoopers recorded ten €500 million-plus deals in the year compared to eight in 2004.
Deal activity in continental Europe also showed a marked increase in 2005 with deal completions surging to 89 (compared to 54 in 2004). This was mirrored by a sizeable leap in aggregate deal values – up to €16.5 billion versus €8.0 billion in 2004.
Australia, rather than the widely anticipated US, led the march of external bidding nations into Europe. Macquarie Capital Alliance Group (MCAG) snapped up Yellow Brick Road for €1.8 billion, the Nordic directories business TDC Forlag for €650 million and BBC Broadcast for €250 million. There were just 15 transatlantic forays by US buyers into Europe during 2005 and only five of these deals weighed in at more than €100 million.
In the UK, the middle market provided the key sector for deal activity during 2005. The number of deals rose to 67 during 2005 as compared with 43 in 2004, however the overall combined value of these deals remained flat at €8.2 billion. The largest media transaction involving a UK target in 2005 was the €1.1 billion purchase of the privately-owned training and events organiser, IIR Holdings Ltd, by business and academic publisher, T&F Informa.
Broadcast jumped ahead of publishing as the most active segment of European media M&A. Deals in new broadcast media - digital TV, radio as well as 3G mobile telephony – reflected further fragmentation of traditional radio and TV audiences. Broadcasters are increasingly seeking acquisitions in ‘alternative media' segments to preserve their mass-market coverage and to protect against declining advertising rates. An example of this was ITV's acquisition of Friends Reunited. Private equity investors are also active in this sector as illustrated by Permira's acquisition of SBS for €1.9 billion.
Publishing – both traditional and business-to-business (B2B) - continues to see a threat from online. To go some way to combat this, traditional publishers have bought online sites in an attempt to preserve core advertising (particularly classified) revenues as shown by Daily Mail General Trust's acquisition of primelocation.com and News Corporation's acquisition of Propertyfinder.com.
The pan-European directories businesses saw continuing consolidation with the €285 million disposal of Belgacom Directory Services to Apax and Cinven-based World Directories Group and Aftonbladet's €22 million acquisition of TA Teleadress Information Holding from Industri Kapital.
The explosion of online advertising spending, coupled with the exponential growth in broadband uptake and usage in Europe, has challenged the marketing services industry to best exploit the emerging online channels for their clients. The ambition and need to provide a complete global service has led to a string of in-fill acquisitions. Aegis has recently acquired Hungary's leading digital agency, Kirowski, and is integrating this and other acquisitions under one banner to build a worldwide digital marketing services network.
Convergence is, again, back on the media agenda. However, PricewaterhouseCoopers sees three distinct types of ‘convergence':
- The first between ‘old' and ‘new' media (as noted above)
- Convergence within the telecom/delivery industry with deals such as the proposed NTL/Virgin Mobile and Sky/Easynet takeovers.
- Consolidation between ‘delivery' and ‘content' companies is, by far, the most contentious. While some delivery companies are securing content deals (eg Belgacom buying Belgium football rights) other companies are also planning spin-offs e.g. Telefonica selling Endemol and the possible separation of Time Warner's AOL.
Olivier Wolf, UK entertainment & media leader, PricewaterhouseCoopers Corporate Finance commented:
“As we predicted at the start of 2005, this has been a good year for media M&A with strong growth throughout the year. Private equity investors are increasingly comfortable in the broadcast space and this pattern looks set to continue throughout 2006 due, in part, to their vigorous appetite for deals and the opportunity to exit from investments due to the healthy valuation environment.”
Predictions for 2006 include:
- Continuing convergence: Further corporate activity is anticipated to marry ‘old' and ‘new' media formats. A flurry of activity in the second half of 2005 has set the scene for more deals in 2006. Marketing services agencies, in their pursuit of a global digital offering, will make further acquisitions in the area of pure play digital agencies.
- Traditional media groups: We expect the consolidation, which has occurred in the domestic market in 2005, to extend on a pan-European basis throughout 2006.
- Private equity: As in 2004, PE firms clinched some of the largest deals in 2005. We predict that this will continue throughout 2006 not only in publishing but in broadcasting, digital media and creative business models.
- With the likely continuation of the market's three consecutive years of growth (plus the ‘convergence' trend), PricewaterhouseCoopers predicts growth of the overall market to 170 deals with a combined value of around €30 billion for 2006.
END
Notes to the editor:
- Obtaining copies of Media Insights
Press copies are available from Fiona Scholes, PricewaterhouseCoopers, fiona.scholes@uk.pwc.com.
You can also download an electronic copy of the report from www.pwc.com/mediainsights.
- About PricewaterhouseCoopers Corporate Finance
The Corporate Finance team at PricewaterhouseCoopers has more than 800 corporate finance specialists in more than 60 offices in key centres throughout the world. In 2005, PricewaterhouseCoopers Corporate Finance completed over 350 deals globally, valued at over $45 billion. Services include advice on acquisitions, disposals, private equity transactions, privatisation, corporate and project finance. Industry teams include Energy and Utilities, Business Services, Consumer Products, Financial Institutions, Industrial Products and Technology, Media and Telecoms. For the fourth year in a row, PricewaterhouseCoopers is the UK 's leading M&A adviser for transactions between $50m and $500m, having advised on a higher volume and value of mid-market deals than any other adviser in 2005.
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