Digital Disruption Will Drive M&A In 2013
2013 is shaping up as another active year for mergers and acquisitions in the media, communications and entertainment industries as companies scramble to keep up with the consumer shift to digital and mobile technologies.
Digital disruption of the media landscape will continue to drive M&A, partnerships and joint
ventures this year.
A new outlook report by PricewaterhouseCoopers outlines five key themes for 2013:
*Consumer demand for bandwidth drives need for spectrum. The communications industry will see continued consolidation this year as a result of growing demand for bandwidth supporting content consumption, social networking and location-based services. In January, AT&T announced a pair of deals worth $2.7 billion to expand its wireless spectrum, while Dish made a $25.5 billion bid to acquire Sprint.
*The race for content. Consumer expectations for ubiquitous viewing require distributors to offer more premium and library content than ever. This has accelerated efforts to license and/or acquire content to keep customers from fleeing to competing services. Disney’s $4.1 billion acquisition of Lucasfilm highlights the trend.
*Cross-border M&A. As U.S. and foreign market players look to meet the demand for content, they are increasingly looking to international markets for acquisition targets. Several overseas broadcasters invested in U.S.-based production companies last year, and PwC expects to see more inbound interest in U.S.-based content. Conversely, China will attract digital and entertainment investors because of its growing online population.
*Non-core divestitures. Businesses are expected to exit non-essential assets as a way to increase profitability and allocate capital to key units. This trend has been especially prevalent in the publishing world, where traditional newspaper and other businesses have been especially hard hit by the digital shift. Tribune Co., for example, hired advisers in February to explore the sale of its newspaper publishing unit.
*Digital blurring line between media and technology. Technological innovations will require media companies to continue experimenting with new business models aligned with changing consumer habits. Key to that effort are new digital metrics designed to be more transparent and available in real-time. But many companies are still learning to collect only the most basic information and generate real value from Big Data.
While the total volume of media and communications deals dipped from 931 to 839 deals in 2012, data compiled by PwC showed that the dollar value of deals jumped to $96.2 billion from $55 billion last year. Even excluding Softbank’s planned $20 billion purchase of Sprint (thrown into question by the recent Dish bid), the deal value in 2012 still rose 38%.
The number of deals in the Internet software and services category increased to 149 from 186, while the total deal value increased to $9.5 billion from $6 billion last year. PwC anticipates that the market for Internet deals will remain active this year, mostly consisting of middle-market transactions.