China’s Hollywood invasion has hit some choppy waters recently, but that hasn’t put the squeeze on entertainment and media deal flow, according to a new study from PwC.
There were with 256 deals in the first quarter of 2017, the report said, a healthy 32 percent increase from the previous quarter, and the highest level of quarterly deal volume in the last two years. However, without big-ticket megadeals like AT&T’s $85 billion acquisition of Time Warner, which was agreed on during the fourth quarter of 2016, deal values for the quarter totaled $10.4 billion — a 92 percent dip from the previous quarter. While value was down in the aggregate, individual deals carried healthy price tags, PwC Deals Partner Bart Spiegel told TheWrap.
“From an anecdotal perspective, there has not been a decline in valuations,” he said. “Valuations in target companies remain strong.”
Spiegel said the breadth of deals were a sign of investors’ belief in media and entertainment, and confidence in the markets in general.
“When you look across various entertainment and media sub-sectors, the volume increase happened across all of them,” he said.
One area where volume hasn’t increased is from China. Recent regulatory tightening — most notably, restrictions on moving capital out of the country — have effectively halted a wave of Chinese investment into U.S. companies, resulting in broken deals such as Dalian Wanda Group’s planned $1 billion purchase of Dick Clark Productions.
But while Chinese buyers have been sidelined for now, Spiegel doesn’t think that’s going to have a huge impact on the deal universe as a whole.
“Does it impact things? Yes,” Spiegel said. “But I don’t think it will result in an overall decline [in deals].”
He pointed out that plenty of other interested buyers remain, from existing entertainment, media and tech companies looking for acquisitions that could be part of a vertical integration, to sovereign wealth funds, particularly in the Middle East.
While there’s been plenty of geopolitical upheaval in recent months, from Brexit to the election of Donald Trump, to potentially disruptive elections in France and Germany, Spiegel said it’s too early to say whether an increase in nationalist politicians could impact cross-border deals. He did identify one political figure to watch: new Federal Communications Commission Chairman Ajit Pai, who brings a different perspective on issues like net neutrality and telecom regulation than his predecessors.
“It will be interesting to see what happens with the FCC,” Spiegel said. “New regulations — and the pullback of regulations that have been there.”