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Sector convergence, digital to drive deals in global M&E, says EY

MUMBAI: The M&A outlook for the global media and entertainment (M&E) sector is being driven by convergence and digital disruption, reports EY’s 15th biannual Media & Entertainment Capital Confidence Barometer (CCB).

Sector convergence is the greatest disruptor to M&E businesses, according to 31% of the executives surveyed.

Digital remains at the heart of corporate strategy in the sector. Nearly a third (31%) of executives saw the impact of digital technology on the business model elevated on the boardroom agenda over the past six months.

In response to both sector convergence and digital disruption, M&E executives are seeking out cross-sector opportunities. Sector blurring—companies making increasing and deeper incursions into adjacent or unrelated industries—has become a prominent feature of the current M&A market. The strongest driver of cross-sector deals, according to 67% of executives, is access to new technologies/digitalisation.

EY Global Media and Entertainment Leader, Transaction Advisory Services John Harrison said, “Unprecedented, unrelenting advances in technology and the swift emergence of new platforms and services are driving change in consumer behaviours, upending long-standing media ecosystems and blurring sector lines. Companies are aggressively seeking the innovation needed to position for future success and are looking to acquisitions, alliances and joint ventures to catalyse transformation.”

More than half (56%) of industry executives expect to pursue acquisitions in the next 12 months, up from 46% six months ago. This appetite for deal making remains well above CCB’s long-term average of 45%, pointing to an upturn in M&A in the first half of 2017. Executives also expressed a high level of confidence in key deal indicators. 92% indicated stable-to-positive confidence in the number of acquisition opportunities, 85% in the quality of acquisition opportunities and 94% in the likelihood of closing acquisitions.

While 73% of executives see the global economy as stable (53%) or improving (20%), macroeconomic risks still exist. The rise of populist parties across the globe has become a rising concern for executives. 27% regard political instability as the most important risk to business in the next year; however, this is not causing M&E companies to slow down cross-border investment.

The report shows that companies are expanding geographic reach in order to gain exposure to high-growth regions and under-penetrated markets. 42% of executives are targeting a cross-border acquisition in the coming year. The top five destinations for 2017 will be the US, France, the UK, Germany and China. Last year, before Brexit, the UK was number one, finds the report.

Harrison said, “The M&E landscape has never been more interesting or dynamic. The pace of change is accelerating as media, entertainment, tech and telecom merge into a single ‘super sector’ of competitors and collaborators. Standing still is not an option.”

Alliances, ‘augmental’ deals on the M&A agenda

To create value from underutilised assets, 43% of executives expect to form alliances, engage in M&A activity or form joint ventures. Almost half are targeting deals of $250 million to $1 billion in the next 12 months, deals that might have been considered ‘bolt-ons’ in the past but are now ‘augmental’ because they are at the heart of companies’ growth strategies.

Convergence, digital grab attention

Sector convergence is seen as the most disruptive factor to business over the next 12 months by 31% of executives. Meanwhile, 31% also say the impact of digital technology on the business model has been elevated in the boardroom agenda in the past six months.