Media and telecommunications: US Deals 2023 midyear outlook

Media and telecom deal activity slows following record volumess

Deal activity in the media and telecommunications sector continued to slow in the first half of 2023 following record highs in deal volume and value just two years ago. While capital constraints, high interest rates and regulatory scrutiny all likely played a role in a 20% year-over-year decrease, the period did see 3,609 deals announced during the last 12 months. 

As we look to the second half of 2023, dealmakers will continue to face economic hurdles and we expect deal volume in the sector to remain lower than the record highs during the pandemic. As media and telecommunications remains central to many sectors’ growth strategies, we remain optimistic that strategic deal opportunities will continue to arise within the sector throughout the remainder of 2023.

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Technology is the key driver of transformation

Expensive financing compounded by active regulators has not been kind to the recent M&A market. As a result, many strategic and financial buyers are focused on operational improvements within their existing businesses to help generate incremental margin. And those with strong balance sheets are looking for bolt-on acquisitions to round out their portfolios.

Strategic positioning is the flavor of the month (or last 12 months for that matter), and that will allow media and telecom businesses to respond aggressively once the markets turn around in their favor. 

Learn more about leading practices and transformational mindsets in PwC’s new M&A integration report.

Key deal drivers

Necessity for business reinvention

During 2020 and 2021, the media and telecom sector experienced a significant increase in divestitures of non-core assets, with divestitures representing up to 43% of total deal value in the sector. PwC’s recent divestiture study found that timely execution of divestiture decisions can help increase the chances of value creation. While divestiture deal values have declined to 12% of deal value, non-core asset divestment continues to be a deal driver. This is particularly true for the internet software and services subsector, where 220 divestitures were announced in the last 12 months.

Following the peak divestment period, many companies in the media and telecom sector continue to benefit from significant cash reserves. The excess cash provides a distinct advantage to be opportunistic with deal execution while other parties may be frustrated with capital constraints.

Opportunity amid uncertainty

Increased regulation continues to present significant challenges for M&A activity in the media and telecom sector. In May 2023, television station operator Tegna announced it had terminated its agreement with hedge fund Standard General. The deal, which was expected to close in the second half of 2022 and valued at $8.6 billion, crumbled following the FCC’s decision to hold a hearing in February 2023.

Microsoft has faced similar regulatory headwinds in obtaining approval for its acquisition of Activision. While the May 2023 EU antitrust approval represented a small victory, Microsoft still faces a long road ahead as the deal needs to secure FTC approval domestically as well as approvals internationally, including authorities in China, South Korea, New Zealand, Australia and the UK.

We’re now living in a new regulatory era — one trending toward more protectionist policies — that requires new strategies to successfully close deals. Our refreshed dealmakers’ regulatory playbook can help TMT companies navigate the new era.

Resilience and innovation for growth and sustainability

As the strike by the Writers Guild of America (WGA) extends to its second month, discussions around the potential disruption of M&A activity in the industry are moving to the forefront. The strike is projected to have significant industry implications as union members demand compensation realignment, residuals for content aired on streaming platforms and contracts with provisions regarding artificial intelligence.

To counteract the disruption caused by the strike, we anticipate established market players will turn to the now robust international production infrastructure to repurpose content for the US market. We also expect an increased focus on non-scripted or soft scripted programming. Look for alternate forms of programming to take shape, including a resurgence of game shows and potentially a broader inclusion of influencers and social media stars to help carry the entertainment industry through a prolonged strike. Regardless of how the strike plays out, the consumer will continue to navigate a disaggregated, oftentimes frustrating ecosystem that challenges content discovery. Some level of M&A activity may be a solution to address these challenges.

Capital allocation

The demand for live experiences continues to drive investment in sports and sports-adjacent businesses. While total deal volumes within the media and telecom sector have declined, recreation and leisure volumes experienced a significant uptick in the first half of 2023. 

With COVID-19 restrictions in the rearview mirror, the heightened demand for live experiences coupled with improved data and technology has excited investors, prompting strategic investment like Endeavor’s merger of UFC and WWE and a number of investments in professional sports teams by both foreign and domestic entities.

Despite economic uncertainty, we expect investment in live entertainment to continue in 2023, as the long-term shift toward a preference for experiences over possessions accelerates due to the growing spending power of millennials and younger generations.

“This isn’t the first time we’ve all lived through an M&A market slowdown. However, the current environment remains challenged by a prolonged disconnect in valuations between buyers and sellers.”

— Bart Spiegel, Global Entertainment & Media Deals Leader, Partner, PwC US
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