EY - Capital Confidence Barometer: Media and Entertainment

Capital Confidence Barometer: Media and Entertainment

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Our tenth Capital Confidence Barometer shows confidence is propelling the industry forward.

M&E respondents’ outlook for the economy is more resilient than at any time in the past few years. While economic pressures and geopolitical shocks temper this confidence to some extent, the persistence of such shocks means these risks are being factored into long-term business plans.

The relative consistency in our respondents’ overall confidence numbers — down slightly from 6 months ago, but still up solidly from 12 months ago — points to an improving outlook. With broad and consistent confidence across key financial indicators, M&E executives are focused on optimizing their operations and executing on their growth plans.

“Strong corporate earnings, widespread credit availability, high equity valuations, and short-term market stability are providing the foundation for M&E executives to implement their strategic plans, from reaching customers on new digital platforms to entering into new markets.”
Tom Connolly, Global Leader, Media & Entertainment Transaction Advisory Services

Key findings

Improved confidence: 64% of executives believe the global economy is improving (up from 59% last year), indicating growing confidence in the economy.

Credit is widely available:  Respondents’ confidence in credit availability is at its highest level ever in the Barometer. We are seeing a significant increase in the availability of credit to the M&E industry (which has increased its debt by roughly a third over the past three years), coupled with overall stabilization in credit conditions. Growing and persistent confidence in the availability of financing provides a favorable platform for deal-making.

Companies have increased their borrowing: M&E companies have significantly increased their borrowing in the last year — 35% of respondents indicate they have debt-to-capital ratios greater than 50%, up from 17% of respondents a year ago.

Executives remain positive about global deal volumes: 65% of M&E executives believe M&A volumes will increase in the coming year, up from 62% a year ago. 34% of M&E executives expect to pursue acquisitions in the next 12 months, a continuation of a rising trend.

EY chart showing media and entertainment acquisitions

Expectations for larger deal sizes: M&E companies’ intentions to engage in larger deals (greater than US$250m) over the next year are up strongly, having more than doubled in 12 months. For leading companies, quality of targets, rather than quantity, is expected to be the determining factor for deal-making.

Valuation gap is allowing buyers and sellers to get deals done – for now: 41% of M&E executives believe that the valuation gap between buyers and sellers is less than 10% (up from 28% in the last year), creating a conducive environment for M&A. Yet, this may soon change – 28% of M&E executive expect the valuation gap to widen in the next 12 months (up from 17% a year ago).

Commercial and operational diligence, modeling and integration planning are critical: For M&E executives, overpaying for acquisitions based on unrealistic forward projections is the most significant contributor to deals that fail to meet expectations. Furthermore, margin deterioration, poor operating cost assumptions and customer/supplier reaction have increased in importance, emphasizing the need for commercial and operational due diligence.

About this survey

The Global Capital Confidence Barometer gauges corporate confidence in the economic outlook, and identifies boardroom trends and practices in the way companies manage their Capital Agenda — EY’s framework for strategically managing capital. In March 2014, we surveyed a panel of more than 1,600 executives in 54 countries; half were CEOs, CFOs and other C-level executives, including 61 from the media and entertainment sector.