PwC: Foreign Investment Expected to Rise in U.S. Media Sector

NEW YORK: PwC’s latest report on merger and acquisition activity in the American media business projects that “foreign buyers armed with cash, particularly from China,” will be increasingly active in the film and content sector this year.

PwC’s US Entertainment, Media & Communications (EMC) Deal Insight report says that overall M&A deal value was $10.4 billion in Q1, its lowest point in two years. Deal volume, however, was up by 6 percent over Q4 2015, rising to 183. M&A value in Q1 was driven by film and content deals. There was also a “major spike” in foreign involvement in the U.S. film and content sector. There were 14 M&A deals in the film and content sector, generating deal value of $3.5 billion. Film production/distribution studio deals dominated, with 9 deals, up from 7 in Q4 2015.

“We expect foreign buyers armed with cash, particularly from China and the Middle East, will enter the scene in the coming quarters as Hollywood studios navigate complex international distribution rules, predominantly in these markets, for their piece of this growing [filmed entertainment] pie,” the report states.

Q1 was marked by a slowdown in “megadeals”—those valued at $1 billion or more—and an increase in large and middle-market deals. The quarter’s two megadeals were Wanda’s acquisition of Legendary and Verizon’s purchase of XO Communications. These totaled $5.3 billion.

“We see companies across the entertainment, media and communications ecosystem strive to get ahead of the competition by acquiring content and capabilities for sums large and small,” said Bart Spiegel, partner, entertainment, media and communications deals at PwC. “Changing consumer demographics (and, in turn, demands) coupled with rapid technological advancement make it essential for dealmakers to seek targets that help deliver the connected experiences consumers expect. Delivering video content is at the center of this changing landscape.”

The number of announced deals by U.S. EMC companies acquiring international firms rose slightly. Some 31 percent of the deals were in the U.K., followed by Canada with 15 percent. Increases in the U.K. and Canada were offset by decreased outbound deal activity almost everywhere else, most notably in Latin America and the Asia Pacific. Advertising and marketing was the most active sector for U.S. investment internationally, followed by film/content deals.