Digital Value Chain, Scale to Drive Continued M&A Activity

NEW YORK: PwC is projecting that 2016 will see “robust” merger and acquisitions (M&A) activity in the U.S. entertainment, media and communications (EMC) sector, driven by companies’ need to build presence, scale and digital value chains.

According to PwC’s US Entertainment, Media & Communications (EMC) Deal Insights report, U.S. deal value in 2015 was $149 billion, a 13-percent increase on the year-ago period. Deal volume was down 7 percent to 818. Q4 was one of the slowest M&A quarters in recent history, PwC said.

“We are here to tell you that despite current economic headwinds, we continue to maintain an optimistic outlook on EMC M&A,” said Bart Spiegel, PWC’s U.S. EMC deals partner. “Entering the new-year, we are already beginning to hear chatter around rumored megadeals; and know that key players who choose to sit on the sidelines in 2016 may let significant opportunities pass them by. We expect the ongoing race for all types of content to continue both among the traditional entertainment companies and some relatively new players, helping to sustain multiples.”

Spiegel continued: “Those on the distribution side of the fence know that the increase in over-the-top content consumption utilizes a significant amount of broadband, and they are eager to monetize that bandwidth. Acquiring or attracting new subscribers with a compelling platform and reliable infrastructure will be the key to distributors maintaining customer stickiness and driving revenues for many years to come.”

PwC noted a slowdown in megadeals (those valued at more than $1 billion), likely due to companies taking a wait-and-see approach as other megadeals await regulatory approval and tightened access to debt markets and economic uncertainty, among other factors.

The biggest gains were seen in advertising and marketing deals. Broadcasting deal volume was down 42 percent in 2015. Cable deal volume was down but deal value rose significantly to $84.6 billion. “As broadband growth continues to become more important to the underlying business model, those cable distributors with the scale and infrastructure to deliver broadband speed and capacity at competitive prices will likely find themselves in a favorable position in the near-term,” PwC said. “As a result, and depending upon the outcome of regulatory approvals, we expect additional M&A as mid-tier cable players look to expand their geographic footprint in adjacent geographies taking advantage of potential synergies.”

There were 234 deals involving U.S. EMC companies acquiring overseas outfits. The U.K. represented 18 percent of all outbound deals, followed by Canada (12 percent). India surpassed China, Brazil and Australia as the third most-popular market for foreign deals.