Digital Media Spurring U.S. M&A Activity, Says PwC

NEW YORK: A new report from PricewaterhouseCoopers indicates that merger-and-acquisitions (M&A) activity in the U.S. media-and-entertainment business outpaced the overall deal market in 2010, with the increasing prominence of digital media setting the stage for even more M&As in 2011.

The E&M market—including internet software, advertising, movies, cable and network broadcasting, radio, gaming and music, among others—generated 804 M&A deals, worth $33.5 billion, in 2010, as compared with 779 deals worth $37.2 billion in 2009. These were led by increases in the consumer Internet software, advertising and marketing and video-gaming sectors.

"As the entertainment and media industry accelerates its transition to mobile access and dynamic content, cash reserves and improved debt-financing conditions will allow companies and private-equity firms to execute on M&A strategies focused on content offerings and to reach key audiences amid an increasingly digital environment," said Thomas M. Rooney, U.S. entertainment and media M&A leader at PwC. "With the growing influence of new-media touch points, E&M companies may also take advantage of strategic M&A plans to expand into new geographies and acquire new technologies. Companies must determine how they are going to reach their audiences in an increasingly digital market. Look for E&M deal volume to continue to outperform the broader market in 2011 as media companies complete more middle-market acquisitions."

For 2011, more than 200 deals have already been announced with  $24 billion in deal value (including the recently approved NBC Universal joint venture between Comcast and GE).

The number of private equity-backed deals increased from 126 in 2009 to 140 in 2010, while their announced value nearly doubled from $6.9 billion in 2009 to $13.7 billion in 2010. "With almost $1 trillion of untapped committed capital worldwide, private equity is still primed to make significant acquisitions in the future,"  said Bart Spiegel, a U.S. entertainment & media M&A director at PwC. "Look for a selection of E&M companies to re-evaluate existing business portfolios and accelerate their divestiture plans, as valuations continue to rebound and interest from private equity intensifies."

PwC also notes that chapter 11 bankruptcy filings for U.S.-based E&M companies declined from 30 in 2009 to 21 in 2010. Of the 21 E&M companies that filed for bankruptcy in 2010, 11 emerged during the year, eight of them within two months of filing. "Fast-tracked emergences illustrate a continuing trend toward pre-packaged bankruptcies, which offer quick processing and are perceived to be less costly and less damaging to a company’s asset value," Rooney said.

M&A opportunities in the entertainment and media sector this year include international expansion, video gaming, social media and content and distribution.