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CapitalConfidenceBarometer

Media & Entertainment

M&A remains a core strategic priority in a low-growth environment

May 2016 | ey.com/ccb | 14th edition

2 | Capital Confi dence Barometer

Media & Entertainment Global

Key findings

expect to focus on making better use of digital, technology and analytics to drive growth in the next 12 months 47 M47%

intend to actively pursue acquisitions over the next 12 months 50 M50%

of M&E companies are looking to pursue cross-border acquisitions in the next 12 months 74 M74%

expect distressed asset sales to become more prominent in dealmaking in the next 12 months 37 M37%

expect economic stability or modest growth

56 M56%

45 M45%

78 M78%

42 M42%

84 M84% 84 M84%

3Capital Confi dence Barometer |

John HarrisonEY Global Media & Entertainment Leader, Transaction Advisory Services

Results from our 14th Media and Entertainment (M&E) Capital Confidence Barometer highlight the importance of M&A to the growth agenda for M&E companies. As optimism for an improving macro backdrop fades compared to the outlook just six months ago, M&E executives are actively exploring bold organic and inorganic strategic moves to accelerate growth and drive value creation within a subdued economic environment.

Sector convergence, digital disruption and changing customer preferences continue to impact the M&E landscape. New competitors are gaining share, leading to uncertainty about the long-term viability of well-established — and profitable — M&E business models.

In response, M&E companies are pursuing cross-sector targets to acquire new content or distribution capabilities (or both). At the same time, the strategic, operational and financial benefits of increasing scale are motivating an ongoing wave of horizontal consolidation across the sector.

M&E companies also expect to pursue cross-border and cross-region deals, critically evaluating developed and emerging markets to identify those that provide the best opportunity for growth. In addition, distressed asset sales are re-emerging as a catalyst for M&A as companies look to ease pressure on earnings and/or financial leverage.

Overall, fundamentals in the M&A market remain solid after a record 2015. Companies report healthy deal pipelines full of attractive opportunities and manageable valuation gaps. There is a shift in focus toward larger transactions in order to drive more meaningful growth and synergies. A positive or stable tone in other key deal indicators, including the outlook for corporate earnings, equity valuations and credit availability, also supports strong M&A activity.

In this fiercely competitive, dynamic and rapidly changing world, M&E companies that best achieve commercial advantage through organic innovation and smart, successfully-executed M&A will be best positioned to accelerate growth and win in the marketplace.

M&A remains a core element of the growth strategy


Macroeconomic environmentM&E companies seek to build their own momentum in low-growth economyHaving accepted that global economic growth is unlikely to accelerate in the near term, companies have been revising strategies to enhance revenues and protect earnings. While 84% of M&E executives see a stable or modestly improving economy, there has been a 23 percentage point drop (to 0%) in those projecting strong improvement, compared to six months ago.

M&E companies view heightened global and regional instability, especially in the Middle East and South China Sea, as a key near-term economic risk. US Presidential election dynamics are also creating uncertainty.

expect economic stability or modest growth84 M84% expect strong

growthM0%

perceive increased global and regional political instability to be the greatest economic risk to business over the next 6 to 12 months38 M38%

Volatility across asset classes not overly troubling executives yetHigh volatility in equities, commodities and currencies in the second half of 2015 and the start of 2016 has yet to deter M&E companies’ investment behavior. The prevailing view is for stability across key economic and capital market indicators.

Our fi ndings reinforce what companies have been reporting in their full-year 2015 and fi rst-quarter 2016 results: tough market conditions, but no signs yet of systemic shocks in capital markets or impending asset bubbles.

Please indicate your confi dence in the following at a global levelQ:

Oct-15Apr-15 Apr-16

Corporateearnings

Short-term market stability

Equityvaluations

Creditavailability

Posititive Stable Negative

Oct-15Apr-15 Apr-16 Oct-15Apr-15 Apr-16 Oct-15Apr-15 Apr-16

82%

1%

17%

64%

9%

27%

41%

8%

51%

76%

1%

23%

83%

1%

16%

56%

11%

33%

44%

4%

52%

56%

8%

36%

40%

16%

44%

76%

4%

20%

77%

4%

19%

53%

8%

39%


CorporatestrategyM&E strategy revolves around digital

Digital dynamics (opportunities and threats) continue to dominate growth plans and the boardroom agenda. M&E companies are leveraging technology, data and analytics to develop new products, improve services and better connect with customers who are accessing and interacting with content in fundamentally different ways today compared to just a few years ago. At the same time, this has also elevated fears across the industry of cyber attacks that may impact both brand and revenue.

Nearly a quarter (24%) of all M&E companies plan to enter alliances with other companies, including competitors, to help create value from underutilized assets and take advantage of the expertise and reach of others. Alliances are becoming more attractive as companies seek new sources of revenue, enhance digital capabilities and expand into new markets, while balancing costs and risk. Increasingly, companies are also taking this option to bolster their R&D processes.

expect to focus on making better use of digital, technology and analytics to drive growth in the next 12 months56 M56%

see the impact of digital technology on the business model elevated on the boardroom agenda over the past six months48 M48%

plan to enter alliances from other companies or competitors to create value from underutilized assets24 M24%


Do you expect your company to actively pursue acquisitions in the next 12 months?

What is your level of confi dence in the following at the global level?

What is your expectation for the M&A market over the next 12 months?

M&AoutlookDeal market fundamentals holding steady (so far) after record 2015While deal intentions have tapered slightly from the heady fi gures of 2015, M&E executives report confi dence in key deal fundamentals, the M&A market overall and in the likelihood of their companies executing a transaction over the next 12 months. In an entrenched low-growth economy, companies are using deals to generate their own tailwinds, evaluating multiple strategic opportunities as part of the effort to grow earnings and acquire competitive advantage.

Apr-16

Oct-15

43% 54% 3%

73% 24% 3%

Improve Stay the same Decline

Likelihood of closing

acquisitions

Quality of acquisition

opportunities

Number of acquisition

opportunities

% of positive attitudeDeal metrics

Apr-15 Oct-15 Apr-16

41%

44%

37%

58%

60%

55%

66%

78%

71%

30%Apr-14

40%

50%

60%

Oct-14 Apr-15 Oct-15 Apr-16

34%

59%

45%

50%

40%

Expectations to pursue an acquisition


Bigger deals in focusCompanies considering M&A to drive growth are shifting their focus to bigger, bolder acquisitions. Thirty-two percent of M&E respondents are targeting a deal size above US$250 million, up more than 10% vs. six months ago. To support an active M&A program, companies must maintain a robust deal pipeline. Forty-fi ve percent of executives are evaluating three or more deals today (76% are evaluating at least two). Disruptive forces affecting current business models mean that companies need to assess a wide range of potential targets.

Forty-six percent of M&E executives perceive a small valuation gap between sellers and buyers (valuation gap) as small (<10%). Similarly, the outlook for asset prices is stable, supporting a stable outlook for M&A.

have three or more deals in pipeline45 M45%

are targeting a deal size above US$250 million in the next 12 months32 M32%

perceive a small valuation gap (<10%) between seller and buyer expectations46 M46%

M&A outlookM&A outlook


Increase in distressed asset sales and cross-sector M&A are likely to drive dealmaking Pressure on earnings and/or unsustainable leverage will lead to more distressed asset salesDistressed asset sales will have a greater infl uence on M&E dealmaking, with 42% respondents saying these deals will become more prominent in the next 12 months. Companies are conducting strategic reviews to reposition the business portfolio or the capital structure, or both, for success in the current environment, often with a view to sell underperforming assets or potentially the entire enterprise.

With increasing cross-sector deals, M&E companies are acquiring fi rms beyond their traditional businesses, which may not fi t into existing models easily. As a result, companies are sometimes unable to execute integration effectively to realize synergies. Post-acquisition integration requires careful unbundling and rebundling of the merged entity to fi t with the acquirer; rushing the process and failing to address cultural differences among the companies often lead to deals not meeting expectations.

say access to new materials and technologies/digitization is the main strategic driver for pursuing an acquisition outside their own sector34 M34%

expect distressed asset sales to become more prominent in deal-making in the next 12 months42 M42%

believe failure to achieve synergies or poor execution of integration were the most signifi cant issues that contributed to recently completed deals that did not meet expectations36 M36%

M&A outlook

In addition, access to new technologies and product innovation are leading M&E companies to explore cross-sector deals as they seek to build differentiated services and intellectual property.


M&A outlook

No longer a binary choice between developed and emerging markets, focus on relevant marketsWith global growth subdued and uneven, companies continue to seek cross-border opportunities for pockets of growth. The Organisation for Economic Co-operation and Development’s (OECD) base erosion and profi t shifting base erosion and profi t shifting (BEPS) guidance has not changed the acquisition outlook for many companies, since it is yet to be adopted in several jurisdictions.

M&A outlook

Top investment destinations for M&E

The UK and the US lead among investment destinations, given stronger economic growthStronger macro growth and the availability of high-quality assets in the United Kingdom and United States are making these countries popular investment destinations. France is seeing improved economic growth with the fi rst quarter of 2016 showing the strongest expansion since June 2015. Canada, with its stable economy, and China (mainland), backed by a rebalance toward consumer-focused economy, as well as a growing number of M&E players, continue to be attractive deal-making destinations.

of M&E companies are looking to pursue cross-border acquisitions in the next 12 months78 M78%

are considering the implications of new guidance on tax issued by the OECD regarding BEPS for cross-border acquisition, but haven’t changed their planned acquisition strategy36 M36%

have failed to complete or cancelled a planned acquisition in the past 12 months80 M80%

Companies are seeking deals across regions

United Kingdom

United States

ChinaFrance Canada


For a conversation about your capital strategy, please contact us:

Contacts

GlobalJohn HarrisonEY Global Media & Entertainment Leader Transaction Advisory [email protected] +1 212 773 6122

AmericasKarl ChengBostonMedia & Entertainment Corporate Finance Strategy [email protected]+1 617 478 6372

Dorian SwerdlowNortheastMedia & EntertainmentTransaction Integration [email protected]+1 212 773 6179

Paul SheahenNortheastMedia & EntertainmentTransaction Tax [email protected]+1 212 773 5578

Dan BuchlerWestMedia & EntertainmentTransaction Advisory Services [email protected]+1 213 977 7654

Luis MerliniSouth America, Sao PauloTelecommunication, Media & TechnologyTransactions Advisory Services [email protected]+55 11 2573 3166

Europe, Middle East, Indiaand Africa (EMEIA)Eric SanschagrinEMEIATelecommunication, Media & TechnologyTransactions Advisory Services [email protected]+44 20 7951 9650

William FisherUnited Kingdom and IrelandMedia & EntertainmentTransaction AdvisoryServices [email protected]+44 20 7951 0432

Olivier WolfLondonTelecommunication, Media & Technology Transactions Advisory Services and Corporate Finance [email protected]+44 20 7980 9169

Dietmar KoeslingGermany, Switzerland and AustriaTelecommunication, Media & TechnologyTransactions Advisory Services [email protected]+49 89 14331 17709

Ajay ShahIndiaMedia & EntertainmentTransaction AdvisoryServices [email protected]+91 22 6192 0640

Asia-PacificBen KwanChinaMedia & EntertainmentOperational TransactionServices [email protected]+852 2849 9223

Ishwar MadhyasthaOceaniaMedia & EntertainmentTransaction AdvisorySupport [email protected]+61 2 9248 5865



The Global Capital Confi dence Barometer gauges corporate confi dence in the economic outlook and identifi es boardroom trends and practices in the way companies manage their Capital Agendas — EY’s framework for strategically managing capital.

It is a regular survey of senior executives from large companies around the world, conducted by the Economist Intelligence Unit (EIU). Our panel comprises select global EY clients and contacts and regular EIU contributors.

• In February and March of 2016, we surveyed a panel of more than 1,700 executives in 45 countries.

• In this survey, we had 75 respondents from media and entertainment companies of which 57% were CEOs, CFOs and other C-level executives.

• Media and entertainment companies’ annual global revenues range from: less than US$500m (19%); US$500m — US$1b (33%); US$1b — US$3b (17%); US$3b — US$5b (8%); and greater than US$5b (23%).

• Global media and entertainment company ownership was as follows: publicly listed (74%), privately owned (21%), and family-owned (5%).

Our latest Global Capital Confi dence Barometer continues to fi nd a strong acquisition appetite together with a growing inclination to forge new alliances. Prolonged economic challenges are driving investment decisions and leading companies to ally and co-operate for growth as well as compete and acquire for market share.

Connect with us at ey.com/ccb.

Download our global report and more industry and country-specifi c results at ey.com/ccb

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April 2016 | ey.com/ccb | 14th edition

12 | Capital Confi dence Barometer12 | Capitaital Cl Confionfifidedd ncncee BaBarorometeteer

EY | Assurance | Tax | Transactions | AdvisoryEYEY || Asssusurance | Tax | Transactions | Advisory

About EYEY is a global leader in assurance, tax, transaction andadvisory services. The insights and quality services wedeliver help build trust and confidence in the capitalmarkets and in economies the world over. We developoutstanding leaders who team to deliver on our promisesto all of our stakeholders. In so doing, we play a criticalrole in building a better working world for our people, forour clients and for our communities.

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About EY’s Transaction Advisory ServicesHow you manage your capital agenda today will define your competitive position tomorrow. We work with clients to create social and economic value by helping them make better, more-informed decisions about strategically managing capital and transactions in fast-changing markets. Whether you’re preserving, optimizing, raising or investing capital, EY’s Transaction Advisory Services combine a set of skills, insight and experience to deliver focused advice. We can help you drive competitive advantage and increased returns through improved decisions across all aspects of your capital agenda.

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