Media and telecommunications: US Deals 2023 outlook
M&A activity slows after record levels
Following record high deal volumes in 2021, deals volumes and values in the media and telecommunications sector have slowed but remain ahead of pre-pandemic levels. There have been 3,772 deals during the past 12 months, a 26% year-over-year decrease. Announced deal value totaled $624 billion, an 18% year-over-year decrease driven largely by a decline in internet and software services deals.
As we look to 2023, higher interest rates and inflation, coupled with growing geopolitical tensions and regulatory oversight, will require dealmakers to refine their portfolio strategies and be more intentional about deal value creation. The media and telecommunications sector may fare better than others, as it sits at the center of many sectors’ investment patterns and growth strategies. In addition, large corporates with significant cash reserves are regular players in mergers and acquisitions (M&A) in the sector.
We highlight several key trends that are shaping M&A activity in the sector, including the focus on capital discipline, the continued demand for sports, uncertainties in ad-tech regulation and the decline of the mega deal.
Focus on capital discipline
Over the past few years, there has been a push to divest non-core assets among companies in the media and telecommunications sector, with divestitures representing more than 30% of total deal value in 2020 and 2021. During the past 12 months, divestiture deal values in the sector declined to $52 billion, 8% of total deal value, as companies shifted their focus back to growing their core businesses. With that said, pressure on valuations may force companies to look at whether the sum of its parts is greater than the consolidated value of the group, giving rise to further divestitures of non-core or potentially undervalued assets and redeploying capital in areas deemed more accretive to the overall business. We’ve already seen chatter in the market addressing some of these high-profile assets.
Many companies in the media and telecommunications sector have significant cash reserves. This allows them to be opportunistic and execute on M&A in an environment when other market participants may be sidelined due to financing constraints and therefore enjoy reduced valuations.
An inflection point
Capital discipline is also expected to play a role in streaming businesses, as we expect many of the key players to refocus their efforts on profitability via more purposeful and deliberate content spend; reduced spend on subscriber acquisition costs, including promotions; reducing customer churn; and the rollout of advertising-based video on demand for some platforms. Over the past several years, these companies have spent a significant amount of capital on content to attract and retain subscribers, however market dynamics and investor expectations are shifting toward capital spend and capital discipline to better measure profitability.
1:10
“While the next several months may be challenging for certain buyers given current capital costs, the market has historically rewarded those companies that can be bold and aggressive in finding opportunistic M&A when other players remain on the sidelines. Given the pace of change in the Media & Telecom space, we expect well capitalized companies to continue to execute on their M&A strategy, finding accretive and opportunistic transactions to add to their portfolio.”
Contact us
Follow us
