Analysts predict that target companies will become more costly as there are fewer available, because of fierce competition.
“It’s clear the activity in M&A is ramping up,”Scott Schiller, chief commercial officer for Engine, a global consulting agency, said that. “From Web 3.0 and metaverse to streaming and sports gambling, all these things are happening at once. The larger players that have some money have to fast forward their strategy.”
Analysts predict that media companies will be competing more to attract subscribers and more content in a fragmented market. Many of the largest stakeholders will be able to offer top-dollar deals as they either buy or build services.
In 2019, S&P Global Market Intelligence reported 1,178 total media and telecommunication deals in the U.S. and Canada. Some of the largest deals consisted of CBS and Viacom’s $20.8 billion merger and Sinclair Broadcast Group’s purchase of regional networks from Fox Sports for $10.6 billion. Entertainment One was also purchased by Hasbro in a $4.5billion transaction. (Amounts are gross transaction values compiled by S&P in January 2022.)
In 2020 there were 1,101 transactions and 1,384 for 2021. As the pandemic started, there was a slowdown in M&A activity even as media consumption increased dramatically, especially in streaming. Several factors contributed to the slight decrease, including the significant drop in revenue for many of these companies due to widespread lockdowns that impacted theaters, events and theme parks — as well as the scaling back of advertising.
In 2020, equity values declined making it more difficult for media companies to make deals. In part, this was because there was already a lot of consolidation leading up to COVID: Disney had already added Marvel, Lucasfilm, Pixar and 21st Century Fox; AT&T combined with WarnerMedia; AMC Entertainment consolidated by buying other movie-theater chains. This made it harder to find targets in an uncertain year and some companies still had debt from consolidation.
In 2021, massive deals rebounded, with Discovery merging with WarnerMedia in a staggering $103 billion deal to create an independent entertainment company. Shaw Communications was acquired by Canadian Rogers Communications for approximately $21 Billion. Of course, another key purchase last year was Amazon’s $10.5 billion acquisition of legacy studio MGM as Big Tech fights over Hollywood. There was also Vivid Seats’ $65 million acquisition of Betcha Sports as sports media and gambling gained traction.
“The last few years, debt has been quite cheap and the value of equity has been rising. This helped fuel large acquisitions,”Iliya Rybchin was a partner in management consulting firm Elixirr. “This will not last long, and many companies hear the ticking clock, forcing them to accelerate acquisition strategies.”
Analysts expect continued growth in 2022 due to the ongoing pandemic. This has driven many media companies and networks to expand as consumer demand increases. Smaller digital media companies and networks will have to quickly scale as the market changes, Rybchin explained – and acquisition and consolidation are the fastest ways to get there.
“The industry is in an arms race to simultaneously acquire content and subscribers,”Rybchin spoke. “Consolidation is one of the critical strategies … to fend off Netflix, Amazon and Apple.”
We are already seeing signs of that pressure, including Microsoft’s acquisition of Activision Blizzard, the biggest merger in the company’s history. This buy made the tech giant the world’s third-largest gaming company, right behind Tencent and Sony. The deal also follows Take-Two Interactive’s acquisition of mobile game company Zynga for $12.7 billion earlier this month. Similar to the streaming wars between movies and shows, the gaming industry is vying for subscription services and exclusive titles.
“This year, you will see gaming and entertainment come together even more, and sports and tech will come together more,” Schiller said. “Streaming are the new cable bundles, so you need consolidation. Let someone buy them and figure out how to put them in one place.”
