Media & Telecommunications deals insights year-end 2019
2019 Media & Telecommunications deals insights
On the heels of a particularly strong year for M&A, 2019 ended with 635 deals in the Media & Telecom sector, down 27% from 2018. Despite the contraction in deal volume, 2019 was a transformative year for the sector, with game changing mega deals coming to a close and over the top (OTT) focused strategies disrupting the relationship between traditional media and Big Tech.
We expect the 2020 M&A market to remain consistent with 2019, as leading industry heavyweights roll-out key strategic offerings, all while evaluating their internal portfolio, looking for opportunities to monetize existing assets and repurpose capital.
“The 2019 M&A market softened more than we anticipated and we expect 2020 levels to be consistent with 2019. Why? We believe the dominant market players will continue to focus on their internal strategies in order to solidify their market position in a year that will shift the consumer landscape for decades to come.”
High level trends and highlights year end 2019 (vs. year end 2018)
- Deal volumes declined by 27% in 2019 with 635 announced deals compared to the prior year. Q4 2019 marked a two-year low of 137 deals.
- Announced deal value also declined in 2019, largely driven by 4 mega deals over $5B totaling $40.6B, compared to 5 in 2018 totaling $68.1B. Total announced deal value in 2019 of $91.9B declined by 25% from 2018.
- Advertising & Marketing and Internet & Information continue to dominate deal activity, together comprising 58% of deal volumes in FY 2019.
- Though declining in absolute deal volume, private equity acquirers accounted for 28% of 2019 deals - the highest level seen in recent years.
Highlights of deal activity
While deal volumes declined across the board, 2019 has proven to be a transformational year for the Media & Telecom industries. Disney completed its highly anticipated acquisition of 21st Century Fox, AT&T overcame regulatory hurdles to close its acquisition of Time Warner and CBS and Viacom have merged - resulting in a media landscape that closes the year looking very different from where it began 12 months ago.
A look ahead at the reshaped media and telecom landscape
Looking ahead to 2020 and beyond, we have identified several themes we expect to shape the future of the Media & Telecom sectors and drive M&A activity.
The Streaming War
With industry-shaping mega deals now completed, 2019 saw legacy media punch back against Big Tech’s encroachment in the media sector, with Disney+ (soon to be followed by HBO Max and Peacock in early 2020) taking on Netflix and Amazon, while Apple launched its own streaming service, Apple TV+. But with so many players now active in the OTT space, what will give any one platform a competitive advantage to stand out? In order to attract and retain audiences, OTT platforms will need to produce and / or procure compelling content libraries, data and analytics capabilities and artificial intelligence to predict consumer preferences and content popularity.
5G’s impact on the value chain
The fifth generation connectivity standard will succeed 4G over the next few years, with 100x higher speed and 1,000x more capacity. Wireless carriers began the 5G rollout in 2019 in major cities across the country, with additional cities continuously being added across all carriers. To remain competitive, telecom companies are investing billions in the rollout of 5G to build or acquire network density, spectrum and equipment. 5G will not only drive M&A activity in the telecom sector, but improvements in the speed and reliability of networks will enhance the experience of connected devices, streaming, multiplayer gaming, and augmented and virtual reality, making adjacent sectors more attractive acquisition targets.
Data continues to reshape advertising
Over the past few years, two distinct trends have emerged in advertising and marketing. Larger holding companies, previously driving deal volumes through traditional industry consolidation, have shifted M&A strategies towards larger, more valuable data and analytics-driven targets with Publicis’ acquisition of Epsilon Data Management in 2019 as the latest example. At the same time, non-traditional players in retail and consumer products continue to acquire analytical marketing and ad tech players. These trends have no end in sight, while smaller agencies continue to consolidate to gain scale and remain competitive as data continues to reshape the sector.
Live sports remain dominant
Though viewing habits have changed, the popularity of live sports has created value and new opportunities throughout the sports sector. Silver Lake’s recent outbound investment in Manchester City valued the club at $5B, a record high for a soccer franchise and the latest in a trend of record breaking valuations following the Brooklyn Nets earlier this year and the Carolina Panthers in 2018. Looking ahead, the Los Angeles’ new SoFi Stadium opening in 2020 will lead the charge for a new standard of live entertainment and fan engagement, which will require teams to invest in technological capabilities, 5G connectivity, immersive experiences and ticketing technology. The recent merger of DraftKings, SBTech and Diamond Eagle Acquisition Corp. for an estimated combined valuation of over $3B reflects investors’ view of a growing opportunity in online gambling as more states ease restrictions.
What else could be in store? Some quick thoughts for the new year and the new decade . . .
- As media conglomerates continue to evaluate their portfolio, which non-core assets may they look to sell and to whom?
- How will standalone legacy media companies adapt to stay competitive in an evolving media landscape?
- How will distributors address continued subscriber losses? Will they look towards a la carte pricing, increased broadband costs or another avenue given the absence of net neutrality?
- Are we dealing with a bubble as it relates to content creation with approximately 532 scripted shows1 released in 2019 and what does that mean for the economics in the industry? What will be the appropriate content spend per subscriber?
- TikTok has proven in the last year that there is room to penetrate the crowded social media market - will another platform shake up the market in a similar way?
- How will generational preferences shift between gaming and traditional content as media companies compete for consumers’ time?
1 FX Network Research Department
About the data
Our analysis highlights the ongoing changes in the Media & Telecommunications industry due to technology advances, the convergence of traditional and new media, and ever-shifting consumer preferences.
Our analysis was based primarily on individual Media & Telecommunications sectors as defined by Thomson Reuters, with the exception of Telecommunications and Internet Software & Services and E-Commerce, which we have renamed as Telecommunications and Internet & Information, respectively, for the purpose of our analysis. In addition, all deal values disclosed, unless otherwise noted, were determined using transaction value. While in certain cases, enterprise value may exceed transaction value, it has not been considered in our analysis.
We define US Media & Telecommunications transaction activity as acquisitions, mergers, consolidation of minority interests, shareholder spin-offs, divestitures and restructurings. Acquisition targets are defined as US companies acquired by either domestic or foreign acquirers (both corporate and private equity). Cross-border deals in this publication have been limited to announced acquisitions of targets located outside of the United States by US acquirers. Deal value is transaction value as reported.
For transactions where the buyer and target are in different industries, the announced acquisition is counted in both industry deal reports. To combine deal value or volume across reports, one should eliminate the double-counted deals.
