M&A is powering the evolution of the media and entertainment industry

Media and entertainment executives are bullish on M&A, with 85% expecting the M&A market to improve in the next 12 months.

Strong confidence in the M&A environment is leading media and entertainment companies to pursue transactions that will reshape, reimagine and reinvent their positioning within the strategic landscape.

The latest EY Global Capital Confidence Barometer reveals that media and entertainment executives are bullish about the benefits of transaction activity, with 85% expecting the M&A market to improve in the next 12 months (compared with just 64% in October 2018). More than half of respondents (53%) now expect to actively pursue deals in the year ahead — up from the 10-year CCB average of 46% — reflecting the intensifying need for media and entertainment companies to reposition business portfolios to capture future growth opportunities and respond to rapidly changing market realities.

Increased confidence in the global dealmaking backdrop is driven by the favorable performance of the capital markets; a significant majority (over 80%) of industry executives believe corporate earnings, equity valuations and credit availability will further improve over the next 12 months, even in the face of negative headlines speculating about potential macroeconomic softness and geopolitical instability.

This positive perspective is translating into a strong outlook by media and entertainment executives for growth — 95% say the economy is improving (up from 48% in October 2018), a sharp counterpoint to worries raised by many economic and business commentators.

Era of active portfolio reshaping

The imperative to build agility and resilience into the enterprise is resulting in an increased frequency of detailed portfolio reviews. Almost half of media and entertainment companies (49%) are evaluating their business mix on a quarterly basis, up from 23% in October 2018. M&A is serving as a catalyst to create meaningful operational change in an accelerated manner. Executives report that these reviews resulted in targeted investments — including inorganic investment via acquisitions — in high-potential business units.

Additionally, the analysis often leads to the identification of underperforming assets or assets at risk of disruption, which opens a path to potential divestment activity. The divestiture of a business deemed non-core allows media and entertainment companies to recycle capital into more promising growth areas.

Critical to manage the opportunities and risks of M&A

The need to satisfy investor demands for above-trend returns, combined with ongoing disruption and competition, means that media and entertainment companies are continually looking to acquire the building blocks of growth. Executives indicate the primary strategic drivers for pursuing acquisitions include the addition of key technology, talent and new capabilities (23% of respondents); responding to changing customer behavior (22%); and convergence-driven expansion into adjacent markets (21%).

But the most attractive opportunities often draw a crowded field. A majority (84%) of executives expect increasing competition for assets over the next year (compared with 68% in October 2018). Takeover battles for acquisitions are not uncommon, especially in situations where the target represents a compelling, truly unique asset. To prevail, media and entertainment executives must carefully assess the value creation opportunity available through integration, and the risks associated with achieving the estimated synergies. Of all the challenges associated with M&A, 27% of media and entertainment executives see integration as the greatest risk to a successful outcome.

Transacting to transform

Positioning for the future within the dynamic media and entertainment industry requires a bold approach and a willingness to embrace change and innovation. Disciplined dealmaking, smart capital allocation and a relentless focus on operational excellence — while balancing the risks and rewards of transformation — will power the evolution of the enterprise and enable a better tomorrow.