PwC sees record deal volume

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Foreign acquirers and strategic buyers are set to take center stage in media and entertainment deal-making this year as private-equity firms remain cautious amid the recent credit crunch, according to PricewaterhouseCoopers' E&M Transaction Services.

In a new report, it also predicts that 2008 industry deal volume could set a record this year even though deals with price tags below $1 billion will be more common. PwC predicts that digital acquisitions will remain a key transaction focus for media and entertainment companies.

PE groups will remain active in the industry but also will focus on middle market companies — rather than big buyouts — mainly in the publishing, broadcasting and cable sectors, PwC said.

Industry and PE executives also have predicted recently that sector companies will regain prominence in deal-making amid a challenging climate for PE groups (HR 11/2).

Meanwhile, foreign firms, especially from Europe, look ready to jump on attractive U.S. media assets amid a weak U.S. dollar and a strong Euro, PwC predicted.

The changing financial market dynamics and big potential industry deals — such as Microsoft's bid for Yahoo and the planned Sirius Satellite Radio-XM Satellite Radio merger — make 2008 a "wild card" year for sector M&A, said Thomas Rooney, transaction services leader of PwC's U.S. entertainment and media practice. "If the above deals are approved and completed in 2008, deal value may be the highest we've seen."

The recently finished 2007 recorded 1,168 closed deals, up 16% from 1,008 in 2006, according to PwC's "2008 M&A Insights — U.S. Entertainment and Media Industry."

Despite a second-half slowdown in PE activity amid the credit crunch, PwC said PE firms pumped nearly $45 billion — or 41% of 2007 deal value — into the media and entertainment sector, up from $19.4 billion, or 15%, in 2006. Average private equity deal value more than tripled to $897 million.

Last year also saw an increase in completed mega deals as 23 transactions were valued at more than $1 billion, including 14 valued over $2 billion, PwC said. In 2006, 16 deals had a price tag above $1 billion.

"Convergence remains a key factor influencing deal activity in E&M," predicted Erik Miller, transaction services entertainment and media director at PwC.
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