Media and entertainment executives focus on drivers of change
As M&E companies seek to effect meaningful change to adjust to new market realities, they are emphasizing drivers that will increase profit margins and, ultimately, cash flow. The pivot to a direct-to-consumer distribution model has many M&E companies moving more customer interactions onto fully digital platforms for account activation, transaction activity and customer service.
Similar to front-of-house operations, M&E companies are using technology and automation in the back office to redeploy or replace higher-cost labor roles and improve scalability. And they are willing to divest any non-core or underperforming assets that they identified during their strategic review process.
Triggers for transformation within M&E companies include pandemic-induced factors like loss of revenue or a recognition that the existing operating model lacks resiliency, compounding the stress from unforeseen external shocks. Irrespective of the pandemic, industry leaders are finding that the challenge of attracting and retaining the right talent can be a catalyst for transformation, powering new ways of working or even M&A activity.
Transformation projects announced recently by many M&E companies are grounded in the practical need to reduce expenses and improve operating efficiency to create a more flexible operating model and cost base, releasing trapped resources for reinvestment into growth initiatives.
Technology alignment and business resilience are top-of-mind when considering an M&A target
The pandemic has also affected M&A strategy among M&E executives. Of the 41% of M&E executives who are considering M&A in the next 12 months, 39% are looking to increase operational capabilities, while 35% are seeking bolt-on acquisitions.
Industry respondents cite the need to reassess and rebalance their portfolios. Additionally, when considering an asset, M&E executives say they are placing a sharper focus on a target’s digital strategy and technology alignment and more thoroughly considering its business resilience.
Swings in the capital markets also are influencing transaction valuations, adding a degree of difficulty to deal negotiations. Nearly three-quarters (72%) of M&E executives also expect increased competition from private equity (PE) firms, many of which are sitting on record amounts of dry powder.