Entertainment and Tech Mergers Surge in Q2, PwC Study Finds

Comcast’s purchase of DreamWorks and Lionsgate’s scoop of Starz were two of the biggest deals in a huge quarter for M&A

Last Updated: July 28, 2016 @ 6:06 AM

If it seems like a media or content company is getting snapped up almost every day, that’s not too far from the truth. Mergers in the tech and media sectors climbed 3 percent in the second quarter of 2016 to a whopping 188, according to a study released Thursday by PricewaterhouseCoopers.

Deal volume — dominated by Microsoft’s purchase of LinkedIn for nearly $27 billion — was up 293 percent to an aggregate of $41 billion, the highest total in the last 12 months.

But even taking out the LinkedIn deal, four other transactions had values in excess of $1 billion, and the total value of those four other “mega deals” nearly doubled the values of the $1 billion-plus deals in the two previous quarters.

Bart Spiegel, a deals partner at PwC in charge of the Deals Insight report, said those signature deals are emblematic of where M&A is looking right now — at content and distribution that plays both in the U.S. and potentially higher-growth markets abroad.

“Seemingly, a majority of the transactions consummated these days are in the pursuit of either quality content, complimentary distribution channels or technology,” Spiegel wrote in the report.

One of the biggest of those “quality content” deals was Comcast’s $3.7 billion swoop for DreamWorks Animation, which is behind global smash hits such as the “Shrek” and “Kung Fu Panda” franchises. And at the tail end of the second quarter, mini-major studio Lionsgate announced that it has agreed on a long-speculated acquisition of cable network Starz for $4.4 billion.

Billionaire media mogul John Malone has a substantial ownership interest in both Lionsgate and Starz, and the deal is seen as a way for Starz to enhance its pipeline of movies and series through Lionsgate’s library.

“There are two things in play,” Spiegel told TheWrap in a phone interview. “Building out a more robust portfolio of content and identifying creators with content valued in the market, and pairing up content with distribution partners.”

Spiegel pointed at production companies and studios, such as DreamWorks, being particularly juicy targets — especially ones that can benefit from the increased scale when strapped onto a larger organization.

“Production companies have been very hot and continue to be,” Spiegel said. “Once you own one, you can capitalize on synergies.”

The report also highlighted Chinese investors’ aggressive pursuit of U.S. media companies. Over the last two years, a wave of co-production deals between American and Chinese entities, such as Lionsgate’s arrangement with provisional broadcaster Hunan TV and STX’s deal with Huayi Bros. opened the floodgates for more partnerships.

That ultimately culminated in Dalian Wanda Group’s $3.5 billion acquisition of Legendary Entertainment — the first Chinese purchase of a substantial U.S. production company.

And in the second quarter, more Chinese-backed deals such as Tang Media’s acquisition of IM Global helped make it the third most active acquirer of American media companies, according to the report.

Many observers view the firehose of Chinese cash flowing into Hollywood as a way for Chinese media companies to take interest in a lot of content companies that are finding a growing fan base in the country — China’s box office is set to pass the U.S. to become the world’s biggest as soon as 2017, with nearly half its theatrical gross coming from imported films — but also to diversify with an asset that earns money in multiple markets.

Spiegel said that appears to be a key motivating factor behind the stacks of Chinese cash making their way to Hollywood. “On a broader theme, it goes back to a content portfolio you can easily push out across multiple geographies,” he said.

While these are halcyon days for entertainment M&A, Spiegel did identify some potential factors that could put an end to the party. A box office decline or macroeconomic factors that could affect access to capital or cause swings in foreign exchange rates would certainly tamp down on cross-border deals.

But as new distribution options emerge — and consumers potentially shift some of their viewing preferences to formats such as virtual reality — Spiegel said those could be catalysts for even more deals as mega-media companies try to get where their audience is going.

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