Deal discipline is the state of play in today’s media and entertainment (M&E) sector, as it consolidates a multiyear run of active dealmaking. EY’s 17th Media & Entertainment Capital Confidence Barometer indicates a moderated — albeit still high — level of dealmaking intentions. Half of M&E executives surveyed expect their company to pursue M&A in the coming year, although that indicator has dropped 7 percentage points in six months.
Sentiments registered throughout the latest Barometer provide the backstory. For starters, M&E executives’ confidence in the global economy has quadrupled in the past year, with 82% now projecting ongoing economic improvement. That confidence has, in turn, helped produce significant increases in several other M&E indicators — 73% now expect near-term growth from existing operations and products, 75% project corporate earnings growth and 95% see equity valuations as stable or improving.
This favorable backdrop allows for discipline. M&E executives can more readily forgo paying the high valuations required to make acquisitions in today’s market. They can “wait and see” what happens in the currently noisy regulatory and tax arenas.
And they can focus on leveraging the strategic assets they have already amassed — no longer reacting to digital disruption but using digital disruption to their advantage. M&E executives did, however, sound some cautionary notes. Over 40% see M&A competition increasing in the coming year — much of it from private equity. And nearly two-thirds now see the need to engage all stakeholders in any important deal, with a broader narrative about the benefits.
By comparison, fewer than half of executives across all industries are as concerned about deal rationale. But then the M&E sector has lately seen clear examples of how the risk of regulatory, legal and consumer backlash can damage deal prospects.