Abundant cash reserves and PE Investment Capital to fuel M&A
Shift to digital draws greater attention to content creators
Legalization of online gaming could create an untapped market for 2012
NEW YORK, Jan. 24, 2012 – New and non-traditional market entrants seeking to establish a foothold in the U.S. entertainment and media (E&M) market will trigger merger and acquisition (M&A) activity, according to PwC US. With the strong valuations for content owners and recent changes in online gaming regulations combined with tremendous corporate cash reserves and uncommitted private equity (PE) investment capital, PwC believes the catalysts are in place to fuel E&M deal activity during 2012.
“The lines between media and technology are blurring as technology companies are quickly changing the media landscape and challenging existing business models of traditional E&M companies,” said Bart Spiegel, PwC’s U.S. entertainment & media transaction services partner. “Additionally, the expected IPOs from social media companies may allow them to exert greater E&M market influence. With increasing interest from non-traditional E&M players, E&M companies will need to be more aggressive in pursuit of deals as new market entrants increase competition for prime companies."
In 2011, total completed and disclosed E&M deal value increased to $52 billion from $27 billion in 2010, based on Thomson Reuters data. However, 2011 included $27.3 billion in value related to the Comcast and NBCU transaction. When excluding this mega deal, completed and disclosed deal value remains flat year over year, however average deal value increased 25 percent from $128 million in 2010 to $160 in 2011. Total E&M deal volume decreased 14 percent from 801 deals in 2010 to 687 deals in 2011.
Furthermore in 2011, U.S. E&M companies were also active in M&A abroad. For U.S. E&M companies buying overseas, completed deals with disclosed value increased 28 percent to 46 deals ($5.4 billion) from 36 deals in 2010 ($4.5 billion) spearheaded by large publishing and broadcasting acquisitions. In addition, there are 31 announced and pending U.S. outbound deals as of December 2011 with a total expected deal value of $5.3 billion with $4.1 billion attributed to a music acquisition.
“Content acquisition has risen to the top of the agenda with the accelerated adoption of digital media consumption and the rise of over-the-top services,” said Thomas M. Rooney, PwC’s U.S. entertainment and media transaction services leader. “Companies are primed to seek out domestic and international targets to expand their libraries and push their content internationally as the shift to digital unfolds.” In addition, the continuing transition to digital media consumption is changing the landscape and delivery of consumer advertising, which could lead to M&A activity in the advertising sector.
According to PwC, international TV and cable markets will continue to present attractive M&A opportunities for U.S. networks to expand their footprint via acquisitions or collaborative partnering. For vertically integrated companies with both content and distribution, this allows another outlet to monetize their library and formats for international consumers.
In addition, PwC expects recent legislative changes surrounding online gaming could present untapped business opportunities for both corporate and financial buyers due to the substantial estimated size of the U.S. online gaming market. Even more significant are the potential partnerships online gaming offers with social media.
“The legalization of online gaming could be a real game changer in 2012 if state regulators move rapidly to establish online gaming regulations. Land-based casino operators, gaming manufacturers and suppliers, and social media are all watching these developments closely and will move aggressively to stake a first-mover advantage in this potentially lucrative market,” added Spiegel.
According to PwC future E&M M&A activity and industry considerations include:
Findings are based on research provided by industry-recognized sources, including Thomson Reuters, Capital IQ, Bankruptcydata.com, Standard & Poors, Preqin, Bloomberg, PwC’s Global Entertainment and Media Outlook: 2011–2015 and PwC's Global Gaming Outlook to 2015. Dealmakers in the E&M sector may find the historical and forecast analysis included in PwC's Outlook publications insightful as they evaluate regional growth rates, consumer spending and behavior across industry segments and territories.
For additional analysis and commentary on US deal trends in the entertainment and media industry, please visit: www.pwc.com/us/emdeals.
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