Strategic buyers for entertainment in 2008: PwC

MUMBAI: With private equity on the sideline, 2008 M&A activity in the Entertainment and Media (E&M) industry will likely be dominated by strategic buyers, according to PricewaterhouseCoopers’ E&M Transaction Services practice.

Private equity firms will remain an active player in the industry focusing on middle market companies largely in the publishing, broadcasting and cable sectors. The weakening of the US dollar and the increased strength of foreign currencies such as the Euro will draw foreign interest, especially from European acquirers.

US Entertainment & Media Practice transaction services leader Thomas M. Rooney said, "2008 is a wildcard. The changing economic and debt markets coupled with the pending outcome of potentially industry transforming deals such as the recent Microsoft’s $45 billion bid for Yahoo or the pending $13 billion XM and Sirius merger make a challenging year for M&A predictions."

However, if the above deals are approved and completed in 2008, deal value may be the highest we’ve seen. With a total of 341 announced deals in 2007 pending closure, and mega deals announced in the latter half of 2006 having closed or cleared in early 2008, this year is set to mirror or surpass that of 2007.

PricewaterhouseCoopers’ annual report, 2008 M&A Insights – US Entertainment and Media Industry, reveals that 2007 deal volume surpassed that of 2006. Despite economic and credit market uncertainties during the latter half of the year, a total of 1,168 transactions were completed in 2007, an increase of 16 per cent from 1,008 in 2006.

The three most active E&M sectors driving deal volume in 2007 were publishing, internet software and services and advertising and marketing, which together accounted for 911 of the 1,168 deals, or 78 per cent of total deal volume. In terms of disclosed deal volume and value, 2007 fell short of 2006, with 331 disclosed transactions aggregating $108.1 billion versus 341 deals totaling $129.7 billion in the prior year.

Despite a slowdown of an overall private equity activity during the latter of 2007, private equity buyers were extremely active in the E&M space, investing nearly $45 billion or 41 per cent of 2007 disclosed deal value, up from $19.4 billion or 15 per cent in 2006. Private equity deal volume increased 7 per cent to 159 total deals. Additionally, average private equity deal value more than tripled, rising from $245 million to $897 million in 2007.

There was an increase in mega deals with 23 deals valued over $1 billion- including 14 valued over $2 billion-completed in 2007, compared to 16 deals over $1 billion completed in the prior year. As a percentage of total deal value, 2007 mega deals contributed 74 per cent, up from about 70 per cent in 2006. Private equity completed seven of the mega deals, representing nearly 50 per cent of total mega deal value. Digital convergence and the growing importance of the internet and online media led E&M companies to strengthen their digital platforms, triggering much of the deal activity in 2007.

"Convergence remains a key factor influencing deal activity in E&M. Consumer empowerment over how content is created and used will continue to drive E&M companies to build scale, enhance capabilities, and think outside the box to grab a piece of the PwC estimated $650 billion 2008 US advertising and consumer/end-user spending pie," said Transaction Services Entertainment and Media director Erik Miller.