EY Forecasts Move to ‘Bite-Sized’ Deals in Media Sector

LOS ANGELES: Consolidation in the media and entertainment sector is expected to continue to increase in the next 12 months, EY predicts, but the size of the deals is expected to be "less transformative" than six months ago, with a greater focus on "bite-sized" transactions.

The 11th Capital Confidence Barometer: Media & Entertainment (M&E) survey found that a record number of M&E companies will be pursuing merger or acquisition deals in the next year, thanks to confidence in the global economy and the low cost of capital. The appetite for M&A activity is at a three-year high, EY reports. The top five countries that companies are most likely to invest in during the next year are the U.K., the U.S., Brazil, India and China.

Transaction size will shift towards "middle-market" companies that can boost margins and allow for access to new markets, new content and new technology. More than 80 percent of execs surveyed said that they would cap single-market deals at $250 million; 14 percent said their max single value deal would be between $250 million and $999 million. Only 3 percent expected to pay more than $1 billion for a single transaction. Six months ago, less than half of respondents capped deal value at $250 million and 52 percent would pay between $250 million and $1 billion for a single deal.

"Deal volume is expected to increase, including some landscape-changing deals," said Tom Connolly, global media and entertainment transaction advisory services leader at EY. "However, media and entertainment executives are focusing on more prudent, 'bite-sized' deals that will enable their companies to expand their core businesses in a more measured, more disciplined and risk-averse way. In this type of an environment, it is critical for companies to increase the number of potential deals in their pipelines to create strong momentum in their middle-market acquisition strategies."