Fifty per cent of all Mergers & Acquisitions (M&A) by value in the media sector for the year took place in Q4 of 2010, according to advisory firm PwC, who have suggested that this increased activity in Q4 2010 shows signs that the recovery is strengthening in Media M&A. PwC expects the upswing to sustain through 2011, gathering more momentum as the year progresses.
The firm says the expected upswing in M&A will reflect strengthening economic recovery, and in particular improving advertising revenues. PwC also expects M&A to play a key role in shaping digital transformation strategies for media companies.
According to Nick George, Media and Entertainment Strategy Partner at PwC, economic recovery, technological change and easing credit conditions will drive the M&A market in 2011. “Certain sub-sectors should be particularly active, such as TV, which is buoyed by ten to fifteen per cent increases in advertising revenue year on year, although there remain regulatory hurdles to overcome (e.g. affecting News Corporation’s tabled acquisition of BSkyB),” he added. Film and related industries such as visual effects, which are also on the back of a strong year and M&A activity in 2010 (e.g. Doughty Hanson’s acquisition of Vue Entertainment Holdings), could see further activity in 2011.
“However, further re-structuring cannot be ruled out as persistent structural challenges affect key sub-sectors. Therefore a second round of re-structuring may hit the sector in 2011, as lenders re-appraise performance in light of evolving cyclical and structural trends. 2010 was a relatively quiet year for media restructurings, after the plethora of re-structuring deals in 2008/9 brought on by the recession,” he warned.
PwC observed that after the market low-point for volume and value of Media deals in 2009, greater confidence and activity is returning to European M&A markets. There were 110 European Media deals that concluded in 2010, representing €12 billion in deal value, up over 90 per cent on the €6.3 billion value recorded in 2009.
Although the number of completed deals in the second half of 2010 (H2) was down on the first six months (H1), 44 deals vs. 66, the value of completed transactions was just short of €7.4 billion, which is an increase on the €4.6 billion in the first half of 2010 .
Andy Morgan, Head of Media Corporate Finance at PwC, said the firm expected bigger deals, driven by an appetite among investors to back growth plans in the context of an improving economic outlook, and slightly easier financing conditions.
The largest transactions of 2010 were Liberty Global’s €4.8 billion Q4 acquisition of Promotora de Informaciones SA – PRISA (57.7 per cent stake) and EQT’s Q1 acquisition of Springer Business Media for €2.3 billion.
“Other notable acquisitions over the year included Time Warner Inc’s €145 million acquisition of TV production company Shed Media, BSkyB’s €191 million acquisition of Virgin Media TV Channels, CME’s €300 million acquisition of bTV, and Doughty Hanson’s €520 million acquisition of Vue Entertainment Holdings,” noted Morgan.
George suggested that digital is impacting “virtually every sub-sector of media, with even the most ‘traditional’ of segments such as books and magazines now seeing strong digital impacts from e-readers and tablet devices. Revenue growth is increasingly digitally driven, and having weathered probably the worst of the downturn, media companies will look to digital M&A to drive the top-line.”
“The structural challenges facing certain segments of the media market mean the sector remains a testing one in terms of M&A outlook. However, there is a clear return of confidence in the M&A market which, combined with greater stability and liquidity in the credit markets, sets a good platform for an upturn in activity in 2011,” concluded Morgan.