September 23, 2016
Over the past five years the business models in the Entertainment, Media and Communications (EMC) sector have been upended, paving the way for new EMC players to enter the industry that were traditionally technology companies.
Not too long ago, the boundaries between content creation, content aggregation, and content distribution were clear in the EMC sector, with well-defined business models. But technology innovations, particularly the shift to digital, are rapidly and radically changing consumer behavior by allowing consumers to tap into content on demand.
Increasingly, consumers are cutting cords with traditional cable companies and paying for content directly from the packagers or content providers, cutting out distributors who are responding by offering consumers slimmed down, cheaper subscriptions tailored to their tastes. This fundamental shift in consumer behaviors has accelerated the industry’s race for content since anyone on the value chain can now reach the end customer.
In response, major media companies have made multiple megadeals over the past several years and are beginning to blur the lines between traditional sub-sectors. To get a handle on the megadeal universe, we analyzed representative EMC megadeals (which we defined as those where the target/acquired business was an EMC company) of at least $1 billion in size that were initially announced from 2011 through June 2016. We found 90 such transactions worth a combined $624 billion1.
We categorized each deal, across all subsectors, into four primary deal types and motivating factors:
Consolidation. Consolidation deals are the most common, accounting for more than two-thirds of megadeal value in the EMC sector. These deals often involve competitors, value chain participants or companies with closely adjacent products and overlapping customers. The goal is to unlock value by cutting costs and improving efficiencies. Consolidation deals tend to be relatively successful as the companies know each other well and the synergy potential is significant and usually obvious.
Capabilities Extension. These deals are the second most common, accounting for 20 percent of deal value from 2011 – 1H 2016. Capabilities Extension deals typically involve two large, mature companies. The buyer is usually aiming to scale up and is seeking new products, new talent or new customers in a large, tangential market where it doesn’t already possess the capabilities to compete.
Innovation. These deals typically involve a large, mature company that acquires a smaller, recent start-up to bring new technology or a block of customers into the business to create or enhance competitive advantage. Innovation deals, which are a specific type of capabilities extension, command a high value but are smaller and less complex from an organizational standpoint.
Content. These acquisitions are designed to enhance the content portfolio of a media company. The broadcasting subsector is particularly focused on content acquisition to combat declining revenue.
Check out the full report to dig deeper into the research. Be on the lookout for our next post which will provide actionable strategies for avoiding typical megadeal pitfalls and achieving game-changing M&A.
1Capital IQ, Reuters