The improving economic outlook, the quickening pace of convergence and continuing structural challenges are likely to stimulate M&A activity in the media sector in 2014, predicts David Elms, Head of Media at KPMG. During the first three quarters of 2013 the sector saw a total of 854 completed transactions globally, with a total value of $27.6 billion. This means deal activity fell compared to the first three quarters of the previous year which saw a total number of 933 deals worldwide at a value of $46.08 billion. According to Elms, there is now a ‘pent-up demand’ for M&A activity in the sector which is likely to trigger more and bigger deals next year::
“The pace of change across the media sector is now so rapid that many businesses cannot adapt through a natural process of evolution - creating a market-leading proposition organically is becoming more difficult; companies need to make bold changes in strategy. Together these factors will mean that, in 2014, businesses that have been following a ‘wait and see’ position on M&A, are likely to have to ‘act or get left behind’.”
Source: Thomson Deals
“In the last few years we have seen the phenomenon of new market entrants emerging and eclipsing traditional media businesses before they even had time to change strategy. For example, Instagram, which was launched in 2010, was acquired by Facebook for $1billion in 2012 and Snapchat, launched in 2011, has reportedly already rejected a $3bn buyout offer from Facebook. Similarly, digital music service, Spotify has been making headlines with multi-billion dollar valuations.
“Many traditional media companies, such as print-based businesses, have been wounded by the significant migration to the digital delivery of media content. This in itself is also likely to drive M&A activity, competition commission permitting, and it is surprising that further activity has not taken place sooner.”
Source: Thomson Deals
The search for original TV content among newer, but maturing, TV content providers such as Netflix and Hulu could also act as a catalyst for M&A activity, Elms continues:
“Many of these businesses are moving from offering ‘secondary’ content – TV content and films which have previously been broadcast - to offering ‘primary’ content to secure a competitive advantage. This could result in these TV content providers acquiring producers of content. Furthermore, this strategy could lead to a convergence between businesses in other parts of the media sector including radio and print media.
“This type of content- focused convergence is driven by a desire to create sophisticated communities of customers. Targeting such communities is not a new concept, but technology is making it an increasingly achievable ambition. For example, newspapers are offering their ‘communities’ of readers links into financial services and radio stations are offering TV channels – boundaries are increasingly being broken down. A consequence is that business models need to be able to change rapidly to remain relevant to consumers. Again, this need is likely to stimulate interest in M&A.”
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This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.