Media and telecommunications: Deals 2022 outlook

Digital trends shape M&A activity

Following a rebound in the second half of 2020, 2021 proved to be a strong year for M&A activity in the media and telecommunications sector, with 804 deals during the past 12 months, a 27% year-over-year increase. Announced deal value totaled a record $233 billion, driven by high-profile content acquisitions and special purpose acquisition company (SPAC) transactions.

As we head into 2022, deal activity continues at a vigorous pace, though it remains to be seen if regulatory changes could slow down activity. As companies reevaluate their portfolios and divest  assets, several trends are emerging that are shaping M&A activity in the sector. These include the demand for streaming content, rollout of 5G, increase in online gambling and strong interest from private equity buyers as the sector becomes increasingly digital.  

Strong demand for content creates value

2021 is proving to be yet another transformative year for the media and telecom sector, with AT&T's announced spinoff of WarnerMedia indicating that the major players are divesting assets to reinvest in their core strategies. Telecom companies are freeing up cash to focus on investments in 5G, spectrum and fiber, while major media companies are doubling down on content to fill their streaming offerings. The planned merger of WarnerMedia and Discovery along with Amazon's pending acquisition of MGM Studios illustrate how crucial content libraries are in order to be competitive in the streaming world. We expect that will lead to further consolidation as other streaming providers and studios seek scale.

As content becomes key to media strategies, content producers have become increasingly valuable. The recently announced acquisitions of Hello Sunshine, Moonbug Entertainment and Endeavor's scripted content division commanded impressive valuations. 

Beyond these headline-grabbing examples, deal volumes continue to illustrate the impact that digital disruption has brought to the sector, with podcasts, video games, mobile apps, cloud computing, online gambling, artificial intelligence, and augmented and virtual reality software generating significant deal activity — particularly among private equity acquirors.

While private equity deals in the sector have historically accounted for just a fraction of the overall deal volumes, private equity deals have steadily grown in share from 24% in 2018 to 37% in the past year, representing a record $104 billion of announced deal value — including several notable SPAC transactions in the digital media and online gambling spaces. As media and telecommunications companies reevaluate their business models and sell off non-core assets, we expect to see private equity firms continue to be major players in the sector in the coming years.

Heading into 2022, the media and telecom sector appears primed for another active year of M&A activity. However, it remains to be seen whether potential interest rate increases or tougher regulatory stances could slow down activity.