PwC’s 2013 U.S. Deal Insights for the Entertainment, Media & Communications industries states that the Entertainment, media and communications (EMC) sector deal activity is expected to remain active in 2013. This is attributed to market players further investing to keep up with consumer demand for more bandwidth amid increasing content consumption. Additionally, as more companies continue to assess their portfolios and divest non-core assets as part of their go-forward strategy, PwC anticipates divestitures will be key contributors to deal values for the sector in 2013.

With the fast evolving EMC landscape, PwC expects deal activity to center around the following five key themes:

Consumer demand for bandwidth drives need for spectrum – The communications industry is expected to experience continued consolidation in 2013. This will be driven by the growing consumer demand for bandwidth to support content consumption, social collaboration and location-based services. In an increasingly saturated U.S. market with limited spectrum options, operators are taking the M&A route to garner additional spectrum, geographical coverage, subscribers and more robust product and service portfolios.

The race for content – The demand for content continues to increase valuations for content creators and companies with established content libraries and intellectual property (IP) rights available for franchising, licensing, and IP expansion. As content creators bring their companies to market, potential buyers are also looking for a level of security on prospective cash flows. This may hinge on keeping the existing development team incentivized and motivated post-transaction to replicate past successes.

Looking abroad for cross-border M&A – The demand for content has fueled M&A activity both domestically and internationally. Market players are increasingly exploring international markets for quality content to fulfill demand. Additionally, international broadcast assets are likely to remain potential acquisition targets in those territories with strong GDP and EMC growth forecasts.

Non-core divestitures – PwC expects divestitures to be primary contributors to deal value as more companies seek to monetize their investments and exit non-core assets as a means to improve liquidity, increase profitability, and allocate capital to those business units that best reflect their go-forward strategy. This scenario is especially prevalent in the publishing sub-sector of EMC, as these companies have been most impacted by the shift to digital consumption.

Digital delivery blurs the line between technology and EMC companies – Technology companies continue to change the media landscape and how content is consumed. This further complicates existing business models while offering new revenue stream opportunities, such as downloadable content, micro-transactions and addressable advertising. At the same time, many traditional EMC companies are experimenting with new direct-to-consumer digital distribution models. PwC expects technology companies to continue to invest in the EMC sector and serve as a catalyst to how consumers experience content.

By the numbers:

According to PwC’s Deal Insights, EMC deal volumes in the fourth quarter of 2012 reached the highest level since the first quarter of 2011, with robust deal volumes expected to continue this year. While cumulative EMC deal volumes declined from 931 to 839 from 2011 to 2012, the announced deal value increased from $55 billion in 2011 to $96 billion in 2012. EMC sub-sector deals for 2012 were led by communications, recreation & leisure, internet software & services (ISS), film/content, cable and broadcasting, which all saw significant increases in disclosed deal value from 2011.

  • Communications deal value increased from $26.9 billion in 2011 to $43.5 billion in 2012. While this was primarily driven by one deal in excess of $20 billion, PwC expects this sub-sector to remain active as communications companies seek to increase bandwidth and expand service offerings.
  • Recreation & leisure deal value increased from $2.5 billion in 2011 to $10.6 billion in 2012. PwC expects to see significant deal activity in 2013 as owners look to monetize their assets given rising deal values.
  • ISS deal volume, primarily consisting of small, middle-market transactions, declined 20 percent since 2011. However, deal value grew from $6.0 billion in 2011 to $9.5 billion in 2012 with five deals that comprised approximately 71 percent of the total deal value. PwC expects 2013 ISS deal volume will remain active as the capital requirement to facilitate these investments is not overly burdensome in the middle-market space.
  • Cable deal value increased from $3.4 million in 2011 to $9.1 million in 2012. PwC expects cable companies will continue to explore various strategies to monetize the shift toward increased digital consumption, grow their subscriber base and improve operational efficiencies in 2013.
  • Film and content deal value increased from $1.1 billion in 2011 to $9.0 billion in 2012. Overall deal value of content targets remained strong in 2012 as companies looked to enhance their existing content portfolio and maximize their place in the digital value chain.
  • Broadcasting deal value increased from $2.7 billion in 2011 to $5.8 billion in 2012, driven primarily by one major transaction.

[box_info]PwC’s EMC Deal Insights is an annual analysis based on data for US companies acquired by either domestic or foreign acquirers (both corporate and private equity) where deal value is reported, as provided by Thomson Reuters through December 31, 2012 and supplemented by additional PwC research and analysis. Information related to previous periods is updated periodically based on new data collected by Thomson Reuters for deals closed during previous periods but not reflected in previous data sets.[/box_info]