Executives in the media and entertainment industries have a high level of confidence in the global economy, with 81% saying that the economy is improving, according to a survey done by EY for the 13th Global Capital Confidence Barometer. The percentage was at just 52% last year. Moreover, 73% said that M&A is improving, compared to 49% a year ago. EY surveyed senior executives from large, M&E companies from around the world in order to gauge boardroom priorities and provide an outlook on companies’ capital agenda.
Breaking it down further, the survey found that there is improved confidence regarding corporate earnings (64% of respondents), short-term market stability (83%), credit availability (77%) and equity valuations (56%). When it comes to economic risks, increased volatility in currencies tops the list for 36% of respondents. Other perceived risks included slowing growth in key, emerging markets (23%), and the economic and political state of the Eurozone (20%).
M&A is a bright spot. 59% of executives said they expect to pursue acquisitions in the next 12 months, more than double the number from two years ago. “The magnitude of the jump in the percentage of executives expecting to pursue an acquisition in the next year (up nearly 20 points compared to a year ago) is striking,” said John Harrison, Global Media & Entertainment, Transaction Advisory Services Leader at EY. It shows how the M&A marketplace has recently heated up and indicates that there is higher CEO and board confidence in the sector as well as a strategic need to acquire growth, he said. Regarding the size of the deals, 22% of respondents indicated that their largest planned within the next year will be greater than $250 million, suggesting that compared to last year the trend is moving toward larger deals.
However, only 44% were optimistic about the acquisitions closing. Harrison said that there are a number of factors at play. “First, competition among bidders for quality assets is strong, so there is no guarantee a bid will be successful,” he said. “Second, we see the ‘value gap’ between sellers and buyers starting to expand, which can lead to complexities in negotiation.” And then there is the regulatory factor. “Depending on the perceived level of concentration in a particular media and entertainment sub-sector, regulatory approval of a deal is no slam dunk.”
The survey also found that there are structural challenges media and entertainment companies as a result of digital adoption. And digital disruption has the greatest impact on their core business and acquisition strategies. “As the pace of evolution—in both technology and consumer behavior—continues to accelerate, and new competitors emerge on the scene, rewards will accrue to companies who demonstrate a willingness to be nimble as strategic opportunities arise,” Harrison said. As a result, there has been earnings pressure from digital transformations. When will companies get ahead? “No one has a crystal ball, unfortunately,” he said. “The key for the industry will be the careful navigation of the “in-between time” as legacy business models slowly fade while new opportunities, with new financial profiles, emerge.”