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MUMBAI:
The US entertainment and media (E&M) industry stayed active
in 2008 with merger and acquisition (M&A) deals worth
$150.8 billion being stitched, the highest since 2001.
This was, however, primarily driven by the completion of four
'mega' deals previously announced in 2006, according to PricewaterhouseCoopers'
(PwC) 2009 M&A Insights on the Entertainment and Media
Industry report.
.
Excluding this backlog impact, total disclosed deal value
falls to $74.6 billion, a significant decline from prior periods.
In
terms of overall transaction volume, a total of 1,000 deals
were completed in 2008, a decrease of 17 per cent from 1,202
in 2007, clearly the result of challenging market conditions.
Such deepening economic and credit market uncertainty has
resulted in an unpredictable environment for E&M deal
makers.
Almost
all indicators suggest that E&M transaction activity in
2009 will be significantly less than the previous two-to-three
years, according to PricewaterhouseCoopers (PwC). Recent and
forecasted declines in advertising and consumer spending are
expected to reverberate throughout the E&M industry in
the coming year and beyond.
It
is likely that several E&M sectors will not only be cyclically
impacted but also face the prospect of long term structural
changes due to both the current environment and the continuing
convergence of technology.
Pipeline
metrics also signal an uncertain year with announced and pending
deal value as of 31 December, 2008 at $6.7 billion, a significant
drop from the previous year’s pending total of $100.8
billion, which primarily consisted of 'mega' deal backlog
from 2006. In addition, announced E&M deal volume gradually
declined throughout 2008 with fourth quarter activity the
lowest since the second quarter of 2002.
Despite
these challenges, PricewaterhouseCoopers’ Transaction
Services Entertainment and Media Leader Thomas Rooney commented
that, “With M&A activity ingrained in the DNA of
so many companies and the ever growing presence of private
equity, E&M deal activity might not be as quiet as many
expect in 2009. While the overall value of closed deals will
remain below the high water marks of 2007 and 2008, overall
transaction volume may prove a bit more resilient. History
has shown the E&M industry to be one of the more active
M&A sectors irrespective of market and economic conditions."
PwC’s
analysis identified several key trends impacting the E&M
industry and deal market in 2009:
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Declining consumer spending is impacting many entertainment
and media companies. There are growing indications that the
broader decline in consumer spending that has been driven
by declining home values, shrinking savings, mounting job
losses and tumbling consumer confidence levels is impacting
many E&M companies. As in many E&M sectors, these
declines were also exacerbated by the long term trend of technological
convergence facing E&M companies as they look to monetise
content and adapt to the changing technologies and proliferating
distribution platforms of the digital age.
-
The overall US ad market is expected to decline significantly
in 2009. Advertising spending is notoriously susceptible to
economic conditions, and this recession is proving to be no
exception. Advertising budgets have been substantially cut
across major client sectors including retail, consumer goods,
automotive and financial services.
While
any such declines will be partly influenced by unfavorable
year on year comparisons versus the Olympic and Presidential
election year of 2008, there is little doubt that their impact
on companies that rely heavily on advertising-based business
models will be considerable in the coming year.
- Risk averse acquirers will likely focus on small and middle-market
‘bolt on’ deals in 2009. Several potential megadeals
have long been speculated within the sector and the completion
of one or more such “mega” deals has the potential
to skew overall deal figures in 2009.
PwC expects the trend towards smaller deals to continue through
2009 and beyond as acquirers adjust to the realities of new
credit market conditions.
-
Financing remains elusive for private equity investors. Private
equity investment has been an important driver of deal activity
in E&M in recent years, accounting for around 43 per cent
and 40 per cent of announced deal value in 2008 and 2007.
With the debt markets still effectively closed to many private
equity companies, PwC expects these investors to remain relatively
quiet with new platform investments through much of the first
half of 2009 as they focus on current portfolio company holdings
and look to put their funds to work in new and innovative
ways.
-
Investment strategies and financing methods will continue
to evolve to cope with the current challenges. In addition
to the trend towards smaller deals, the structure of deals
has changed over the last year as the credit markets have
dried up and financing has become more expensive.
Difficulty
securing debt financing for deals has also leveled the playing
field between corporate and financial players, with the strategic
rationale for deals taking greater precedence over the ability
to obtain a favorable capital structure. In response, private
equity buyers will continue to explore new investment strategies
including PIPEs and distressed debt investing ('loan-to-own'
strategies).
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Casino and Gaming saw the most significant growth in deal
value which increased over 250 per cent, to $30.4 billion.
-
Internet Software and Services (B2B) was the most active E&M
sector in 2008 with 305 completed deals accounting for 31
per cent of total deal volume.
-
Broadcasting led in deal value with $36.1 billion or 24 per
cent of total E&M value.
-
Publishing exhibited the largest decline year over year with
value and volume decreasing 86 per cent and 37 per cent, respectively.
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