PwC: Despite ‘no big deal’ 2009 promises more media M&A activity

Published at 10:00 AM on 04 February 2009

- Values are down but volumes remain respectable - Banks are the new PE - Central and Eastern Europe drive 2008 deals

Following the dizzy heights of 2007 M&A activity, last year the European media sector experienced a dearth of mega-deals, as the aggregate value of transactions fell 66% to €17bn from €50bn in 2007 – PricewaterhouseCoopers LLP (PwC) reveals today.

However, the fall-off in deal volume was less dramatic at 28% bringing the number of deal completions last year to 135 compared with 178 in 2007.

The PwC report, M&A Insights 2009, cites a shortage of available debt and disparity between buyers’ and sellers’ price expectations as the cocktail that prevented some of the larger deals seen recently.

Despite this, the industry has still seen the completion of some trophy deals. Last year included the €2.8 billion acquisition of TeleAtlas by TomTom and the €1.7bn purchase, from the UK PE firm Cinven, of a 35% stake in the French cable operator Numericable by the US PE firm Carlyle.

Olivier Wolf, head of media, Corporate Finance, PricewaterhouseCoopers LLP, said:

"The credit crunch really began to bite Europe in the second half of 2008 with just 35 deals, worth a combined €3.3bn completed during this six month period."

"However, the performance was heavily shaped by the UK. If the UK is excluded from the figures, media M&A in mainland Europe was relatively robust last year, running at around the normal levels last seen in 2005 – before the boom years (2006/2007)."

European deal performance was also supported by increasing activity in Central and Eastern Europe. Landmark deals included the €620million acquisition of Bulgaria’s Nova Televisia by Modern Times Group MTG, the Swedish entertainment broadcasting group, from Antenna Bulgaria, and the €148m acquisition of an outstanding minority stake in Ukrainian television station Studio 1+1 by Central European Media Enterprises.

UK endures deals drought

The UK media market saw a marked downturn in both volume and value of M&A, with completed deals down 43% in 2008 (43) on the previous year (75), and has suffered more than the rest of Europe from the ill-effects of the credit crisis and attendant economic downturn.

Although a respectable 35 deals totalling €3.8bn took place in the first six months of 2008, the market then fell quiet seeing only ten deals worth a combined €318m, in the latter half.

This brought the performance down to 2002 levels when nine deals totalling €1.3bn were completed in the first half of the year and 16 deals worth a combined €42m in the second.

M&A on the way

However, to keep current markets in perspective - in 2002, at the low point of the market, just 25 media deals totalling €2.1bn were completed in the UK, and due to the financial pressures on media companies these lows should not be repeated.

Olivier said:

"We expect to see the banks taking action for those businesses with inappropriate debt structures, who are struggling to refinance. This will herald an arrival of M&A activity with fleet footed corporates and some funds positioning themselves to go bargain hunting."

"Defensive M&As will be a feature of 2009. Facing pressure to deleverage balance sheets, companies will look to non-core disposals, preventing attractive opportunities for cash buyers. All share deals with a focus on delivering cost synergies will also increase in attractiveness," he explained.

Distressed situations for traditional, advertising-dependent media will force some disposals and the need to consolidate. Asset swaps and infrastructure sharing is also likely to be a feature for 2009, with newspaper publishers seemingly on track already, as seen by the synergies gained from combining operations at the Independent and DMGT. Broadcasting companies are also facing cost pressure, with increasing speculation surrounding the future of Channel Four and a potential merger with RTL owned Channel Five.

The combination of economic downturn and credit scarcity will push banks into the centre of M&A activity. Due to the gathering problems of debt servicing for some media companies, banks will revert back to de facto ownership.

PE sits on the sidelines

During 2008 the number of PE-backed media deals in Europe fell slightly to 23 from 24 in 2007. The aggregate value of these deals however was significantly lower, from €12.5bn to €3.0bn in 2008.

PE deals accounted for 17% of the aggregate value of European media deals overall in 2008 compared with 25% in 2007 and a massive 44% in 2006.

Olivier explained: "Nevertheless, for every threat there is an opportunity and while PE players are occupied with portfolio management and lack of leverage, trade buyers can make the best of buying opportunities."

The future’s bright

This will be a tough year for consumer publishers with distressed and defensive M&A emerging as key themes. However, there will be a relatively high volume of activity (albeit at reduced pricing levels) if vendor price expectations adjust, or there are substantial re-financings. Funding and advertising revenue declines will also drive similar reactive deals in the broadcast sector.

Olivier said:

"Marketing services agencies will face challenging times, although investments in emerging markets will continue and market research will remain a relatively safe haven. The transition to online capabilities will continue and while the economic downturn will reduce M&A activity it could accelerate the move towards digital products and promote competition for the best assets in this area."

"Europe’s media sector proved its resilience in the wake of the TMT bubble-burst of 2001/2002 and, despite today’s backdrop, remains a dynamic and innovative sector, with further scope for consolidation and growth and with the digital/online revolution still in full swing, it is unlikely to remain in the doldrums for too long," he concluded.



For more information contact:

Olivier Wolf
Tel:020 7212 3864 
 

Sian. Mannakee
Technology, Telecoms, Entertainment, Media, Hospitality and Leisure, PR Manager, PwC 
Tel:020 7213 2538 
Mobile:07715 484 884 

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