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Global Capital Confidence Barometer, May 2016: Media & Entertainment | 14th edition

M&A remains a core strategic priority in a low-growth environment

Results from our 14th Media and Entertainment (M&E) Global Capital Confidence Barometer highlight the importance of M&A to the growth agenda for M&E companies. As optimism for an improving macro backdrop fades compared to the outlook just six months ago, M&E executives are actively exploring bold organic and inorganic strategic moves to accelerate growth and drive value creation within a subdued economic environment.

M&E companies seek to build their own momentum in low-growth economy

Having accepted that global economic growth is unlikely to accelerate in the near term, companies have been revising strategies to enhance revenues and protect earnings. While 84% of M&E executives see a stable or modestly improving economy, there has been a 23 percentage point drop (to 0%) in those projecting strong improvement, compared to six months ago.

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M&E strategy revolves around digital

Digital dynamics (opportunities and threats) continue to dominate growth plans and the boardroom agenda. M&E companies are leveraging technology, data and analytics to develop new products, improve services and better connect with customers who are accessing and interacting with content in fundamentally different ways today compared to just a few years ago. At the same time, this has also elevated fears across the industry of cyber attacks that may impact both brand and revenue.

Deal market fundamentals holding steady (so far) after record 2015

While deal intentions have tapered slightly from the heady figures of 2015, M&E executives report confi dence in key deal fundamentals, the M&A market overall and in the likelihood of their companies executing a transaction over the next 12 months. In an entrenched low-growth economy, companies are using deals to generate their own tailwinds, evaluating multiple strategic opportunities as part of the effort to grow earnings and acquire competitive advantage.

Bigger deals in focus

Companies considering M&A to drive growth are shifting their focus to bigger, bolder acquisitions. Thirty-two percent of M&E respondents are targeting a deal size above US$250 million, up more than 10% vs. six months ago. To support an active M&A program, companies must maintain a robust deal pipeline. Forty-five percent of executives are evaluating three or more deals today (76% are evaluating at least two). Disruptive forces affecting current business models mean that companies need to assess a wide range of potential targets.

Pressure on earnings and/or unsustainable leverage will lead to more distressed asset sales

Distressed asset sales will have a greater influence on M&E dealmaking, with 42% respondents saying these deals will become more prominent in the next 12 months. Companies are conducting strategic reviews to reposition the business portfolio or the capital structure, or both, for success in the current environment, often with a view to sell underperforming assets or potentially the entire enterprise.

No longer a binary choice between developed and emerging markets, focus on relevant markets

With global growth subdued and uneven, companies continue to seek cross-border opportunities for pockets of growth. The Organisation for Economic Co-operation and Development’s (OECD) base erosion and profit shifting base erosion and profit shifting (BEPS) guidance has not changed the acquisition outlook for many companies, since it is yet to be adopted in several jurisdictions.

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