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Media and telecom industry deal activity has been on the rise over the six months ending in mid-May as corporate America emerges from the coronavirus pandemic and companies look to strengthen their core businesses, a new report from PricewaterhouseCoopers finds.
“Following a strong recovery in the second half of 2020, the last six months have seen continued momentum in deal activity in the media and telecom sector with 410 deals and $83 billion of announced deal value,” the firm said in its latest M&A update. “Looking ahead, we believe the recent divergence of media and telecom companies will drive competition and increased M&A activity.”
The 410 deals recorded for the six months ending May 15 marked a slight increase from the second half of 2020, “continuing its recovery from the impact of COVID-19,” PwC said. “Announced deal values reached $83 billion, the highest level in years,” specifically a high for any six-month period over the past three years.
How will megadeals, such as the Discovery-WarnerMedia merger, that were announced after the six-month period reshape the media and telecom landscape? “As the streaming wars heat up, some media companies have turned their attention to content acquisition,” PwC argued, adding that “increasingly competitive dynamics in 5G and streaming (are) poised to drive M&A in 2021 and beyond.”
AT&T’s surprise deal to unwind its acquisition of WarnerMedia by merging it with Discovery “was the biggest sign yet that telecom giants were reversing course on their plans to expand into the media space,” PwC said. “It followed on the heels of Verizon’s disposal of HuffPost and Yahoo/AOL, T-Mobile’s discontinuation of its TVision streaming service and AT&T’s own spinoff of DirecTV into a joint venture with TPG Capital. Given the simultaneous rise of 5G and streaming, both sectors have become increasingly competitive and require more investment in the near term.”
PwC mentioned the planned creation of Warner Bros. Discovery and Amazon’s acquisition of MGM for $8.45 billion, which also came after the end of the period covered by PwC’s latest M&A review, as deals that boost the breadth and depth of buyers’ content libraries. “As these media giants compete with the likes of Netflix and Disney, we expect to see a continued race for content and sports rights, as well as further consolidation among other streaming providers and studios as they seek the scale needed to remain competitive,” PwC said.
Highlighted Bart Spiegel, media and telecom deals partner at PwC: “Players in the media and telecom sector are starting to feel the stress brought on by the enormous capital requirements needed to compete and maintain relevance during this period of transformation, leading to a wave of asset reallocation.”
The media, telecom and technology sector “weathered the pandemic quite well in comparison to other industries, forcing consumers and businesses alike to accelerate the adoption of digital technologies and embracing a shift in how people and companies receive, consume and share content,” Spiegel also told THR.
Spiegel also noted, “the dynamic that Hollywood is facing with significant capital required to play at scale, uncertainty regarding success rates on new content investment and the infrastructure/technology needed to reach the end consumer. Add to that tangential factors like cord-cutting and regulatory concerns, and you have a perfect storm of items driving M&A.”
Otherwise, deal activity has been driven by the internet/information, advertising/marketing and telecommunications subsectors, according to PwC. “Private equity deals reached a new high in terms of both deal volumes and value, accounting for 43 percent and 66 percent, respectively.”
The digital disruption brought on by COVID-19 and shifting consumer behaviors continues to have an impact on sector M&A. “Broadcasting and cable deals have declined as the rise of streaming has accelerated cord-cutting trends,” PwC found. “On the other hand, podcasts, video games, home delivery and wellness apps and other disruptive media continue to generate M&A activity.”
Sports betting and the like are among the growth areas. “As states address budget shortfalls brought on by COVID-19, an increasing number of them have moved to legalize online gambling in some form — whether online casinos, online poker or sports betting,” PwC said. “We expect additional states to legalize online gambling in the years to come, and that will continue to fuel M&A.”
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