The FINANCIAL — The M&A outlook for the media and entertainment (M&E) sector is being driven by sector convergence and digital disruption, according to EY’s 15th biannual Media & Entertainment Capital Confidence Barometer (CCB). Sector convergence is the greatest disruptor to M&E businesses, according to 31% of executives surveyed.
Digital remains at the heart of corporate strategy in the sector. Nearly a third (31%) of executives saw the impact of digital technology on the business model elevated on the boardroom agenda over the past six months.
In response to both sector convergence and digital disruption, M&E executives are seeking out cross-sector opportunities. Sector blurring — companies making increasing and deeper incursions into adjacent or unrelated industries — has become a prominent feature of the current M&A market. The strongest driver of cross-sector deals, according to 67% of executives, is access to new technologies/digitalization.
John Harrison, EY Global Media & Entertainment Leader, Transaction Advisory Services, says:
“Unprecedented, unrelenting advances in technology and the swift emergence of new platforms and services are driving change in consumer behaviors, upending long-standing media ecosystems and blurring sector lines. Companies are aggressively seeking the innovation needed to position for future success and are looking to acquisitions, alliances and joint ventures to catalyze transformation.”
More than half (56%) of industry executives expect to pursue acquisitions in the next 12 months, up from 46% six months ago. This appetite for dealmaking remains well above CCB’s long-term average of 45%, pointing to an upturn in M&A in the first half of 2017. Executives also expressed a high level of confidence in key deal indicators. Ninety-two percent indicated stable-to-positive confidence in the number of acquisition opportunities, 85% in the quality of acquisition opportunities and 94% in the likelihood of closing acquisitions.
While 73% of executives see the global economy as stable (53%) or improving (20%), macroeconomic risks still exist. The rise of populist parties across the globe has become a rising concern for executives. Twenty-seven percent regard political instability as the most important risk to their business in the next year; however, this is not causing M&E companies to slow down cross-border investment.
The report shows that companies are expanding geographic reach in order to gain exposure to high-growth regions and under-penetrated markets. Forty-two percent of executives are targeting a cross-border acquisition in the coming year. The top five destinations for 2017 will be the US, France, the UK, Germany and China. Last year, before Brexit, the UK was number one, finds the report.
Harrison says: “The M&E landscape has never been more interesting or dynamic. The pace of change is accelerating as media, entertainment, tech and telecom merge into a single ‘super sector’ of competitors and collaborators. Standing still is not an option.”
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