3 minute read 6 May 2020
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M&E execs respond to current crisis, anticipate next and beyond

By

Will Fisher

EY Global Transactions Media & Entertainment Leader

Transaction leader in media and entertainment. Passionate about helping clients formulate and execute successful inorganic strategies.

3 minute read 6 May 2020

Whether booming or challenged, media and entertainment companies might pause M&A for now but keep watch for strategic investments.

The latest EY Global Capital Confidence Barometer (pdf) captures a shift in media and entertainment executives’ confidence caused by the unprecedented COVID-19 crisis.

The global pandemic has created unforeseen challenges for the media and entertainment sector, which is experiencing significant ongoing disruption to its operations and will face underperformance throughout the duration of the COVID-19 crisis. Advertising, content production, and businesses related to the physical aggregation of live audiences are experiencing disproportionately severe impacts, with knock-on effects reverberating across the industry.

However, not every industry subsector is impacted equally. Streaming media usage and video game engagement are booming. Consumers and remote workers view the broadband connectivity delivered by multichannel video programming distributors as more vital than ever before, while the sticky revenue models of data and information services providers are proving to be resilient, at least in the initial phases of the pandemic.

Media and entertainment companies of all types are responding with urgency now, while taking steps to prepare for what will come next.

Addressing the now

M&E executives have reassessed their outlook for growth

The survey commenced in February, before the breadth of COVID-19 was well understood, and early responses were highly optimistic — but the outlook darkened considerably after the S&P 500 breached its record on February 19. When asked about their perspective on the global economy, 41% of M&E executives who responded after February 19 reported a negative macro outlook, compared with just 9% holding that view earlier in the current survey period and 12% in October 2019.

Overall, 82% of M&E respondents expect the COVID-19 crisis to have a severe impact on the global economy, compared with 73% of global respondents. This belief translates into a noticeable dip in M&E respondents’ confidence in the market, with only one-third holding a positive outlook for corporate earnings, short-term market stability, credit availability and equity valuations, compared with over three-quarters of respondents this time last year.

M&E executives are reconfiguring operations as a response to COVID-19

The uniqueness of the current situation has left many companies unprepared. The pandemic exposed vulnerabilities in companies’ supply chains and working practices. A significant majority of M&E executives are re-evaluating or modifying their approaches to digital transformation, automation, people management and supply chain resiliency.

M&A survey M&E sector modifying approaches to supply chain, automation, digital transformation, managing workforce

Overall, 89% of respondents state that the COVID-19 outbreak will have an impact on their profitability and margins — of which, 39% expect a severe impact. This could limit the amount of capital available to reinvest in the next generation of products and services, which will be a critical component of success in the mid to long term.

Pivoting to next and beyond

For the vast majority of companies, dealing with what is happening now is their first concern. However, the lessons learned from the global financial crisis show that this could be an opportunity to acquire high-quality assets that will accelerate growth when the market recovers.

Expectations for the M&A market have been throttled down …

Half of those surveyed after February 19 expect to actively pursue M&A in the next 12 months (49%), down from 59% in October 2019. Given the rapidly evolving situation and the fact that additional restrictions have been confirmed since the survey closed, the dealmaking intentions expressed are likely to have further deteriorated.

… but a full stop is not expected

A quarter of respondents reported seeing the current situation as an opportunity to gain market share, with 48% of respondents expecting valuations to come down, potentially leading to more attractive entry points for strategic investments. Any dealmaking that proceeds will apply increased due diligence rigor, as 27% plan to increase their focus on the target’s business resilience while evaluating a transaction.

So, while focusing on the immediate implications of COVID-19 is the No. 1 priority, executives are also having to plan for next and think beyond.

Summary

The EY Global Capital Confidence Barometer (pdf) gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agendas.

About this article

By

Will Fisher

EY Global Transactions Media & Entertainment Leader

Transaction leader in media and entertainment. Passionate about helping clients formulate and execute successful inorganic strategies.