-- Media and entertainment executives expect increase in hostile takeovers
-- Deal pipeline expected to bulge further
-- Cash flows, balance sheets and intent to increase debt financing are strong
A record number of media and entertainment (M&E) companies expect to pursue M&A deals during the next 12 months, according to a recent survey of over 1600 senior executives, of which 94 were from the M&E companies, in more than 60 countries conducted by EY for the 11th Capital Confidence Barometer: Media & Entertainment. The study further reveals that C-suite executives expect the size of their deals over the next twelve months to be less transformative than just six months ago.
Forty percent of respondents said their companies anticipate pursuing acquisitions during the next 12 months, which is almost double the expectation of 22% in 2012. This uptick in expected deal volume is due to a combination of respondents' confidence in the global economy and the low cost of capital.
While the appetite for acquisitions is at a three-year high, the size of those acquisitions is expected to shift toward middle-market companies with the intent to improve margins, move into new geographies and access new content and technology. The vast majority of executives (83%) reported their maximum single deal value would be less than US$250m; 14% will be US$250m to US$999m; and 3% will be greater than US$1b in size. Six months ago, only 48% of executives said their deal size would be less than US$250m, with 52% expecting their single deal value to be in the US$250m to US$1b bracket.
Tom Connolly, Global Media & Entertainment Transaction Advisory Services Leader at EY, says:
"Deal volume is expected to increase, including some landscape-changing deals. However, media and entertainment executives are focusing on more prudent, 'bite-sized' deals that will enable their companies expand their core businesses in a more measured, more disciplined and risk-averse way. In this type of an environment, it is critical for companies to increase the number of potential deals in their pipelines to create strong momentum in their middle-market acquisition strategies."
The Barometer also shows 47% of M&E executives anticipate an increase in hostile or contested acquisitions during the next 6 to 12 months, due primarily to the embedded and long-term value of attractive assets and the relative low cost of capital to obtain those assets.
The report is a survey of nearly 100 senior executives from large media and entertainment companies around the world that gauges corporate confidence in the economy, identifies boardroom trends and provides insight into companies' capital agenda.
Other key findings include:
Increased global political instability is the greatest perceived risk to M&E companies during the next 6 to 12 months (39%).
Globally, 74% of respondents have confidence in their corporate earnings, up from 52% one year earlier.
M&E companies are more confident in their plans to increase workforce numbers, with 46% planning to add jobs, up from 32% one year earlier.
Planned growth for the current year is primarily a function of organic activities (86% of respondents), with growth from acquisitions likely to benefit subsequent years. Nearly half (47%) of M&E companies expect their debt-to-capital ratio to increase during the next 12 months, which is more than double the percentage from one year ago (21%).
Cost reduction was the number one issue elevated on the boardroom agenda as a result of shareholder activism (49%), followed by cash dividend payments (33%).
Almost half (43%) of companies anticipate debt to be their main source of deal financing, followed by alternate funding (32%), cash (22%) and equity (3%).
Nearly half (49%) of the respondents expect the global M&A market to improve during the next 12 months, 50% believe it will stay the same and 1% expect it to decline.
M&E companies are experiencing a reduced level of opportunities in their acquisition pipelines with only 41% of respondents having three or more targets currently under consideration. Seventy percent of respondents expect their deal pipeline to increase during the next 12 months.
The top five countries media and entertainment companies are most likely to invest in during the next 12 months are the UK, the US, Brazil, India and China.