Any conversation about media and entertainment companies getting acquired seems to begin and end with China. But there’s plenty of M&A intrigue beyond headline deals coming from across the Pacific, such as Dalian Wanda Group’s $3.5 billion purchase of Legendary Entertainment. What else is for sale? Who’s buying? And why?
At a panel Tuesday at TheWrap’s TheGrill media and entertainment leadership conference at the Montage Beverly Hills, four veteran dealmakers weighed in just that.
The group saw a prime motive of recent M&A being a direct result of content becoming so much more valuable as downstream providers proliferate — and the fact that there’s not a limitless supply of it that resonates.
“If you look at the landscape, content has really transformed companies,” Carlos Jimenez, a managing director at M&A advisory firm Moelis & Co., told the panel’s moderator, CAA Head of Global Client Strategy Brian Weinstein.
Jimenez highlighted the way “The Hunger Games” and “Breaking Bad” boosted the profiles of Summit Entertainment (now a Lionsgate subsidiary) and AMC Networks, respectively.
“Content is playing such a critical role in the ecosystem,” he said. “You can use content as a differentiator.”
Panelists also addressed the challenges of doing the right deal, and speculated about what four of America’s biggest, richest companies — Amazon, Google parent Alphabet, Facebook and Apple — are likely to do next. They all have plenty of balance sheet cash and differing media ambitions.
Andrew Siegel, the executive vice president of media giant Advance Publications, said Facebook has been able to build a massive business leveraging other people’s content, but he expects the economics to eventually force the social network to invest in its own.
“Ultimately they will have to bite the bullet and get into the content business, and the Oculus acquisition makes that more likely,” he said.
“The interesting thing for both Apple and Google is do they get in the content business at all?” Dan Schechter, a managing director at L.E.K. Consulting said. “Do they use control of a large content service to drive their business?”
Andy Howard, a partner at private equity firm Shamrock Capital Advisors, was extremely bullish on Amazon.
“What they have is extraordinary, and what they will have in three to four years,” he said. “Everything we’re talking about is delivery of content. And they have their hands in all of it. That’s their backbone.”
The panel also addressed the challenges of trying to make a deal from a financial perspective, rather than as a company looking to buy a complementary piece, such as NBCUniversal’s acquisition of DreamWorks.
Howard said that being a financial buyer like Shamrock can be a challenge if a target is pursued by a strategic investor like a fellow media company that might have a different investment calculus.
Private equity funds want to generate a certain return to their investors within a window of time, while strategic investors can take a longer view.
“When strategics are involved, it’s tough for us,” Howard said.
Siegel said it’s critical to stay on top of generational trends when looking at media and entertainment companies to potentially buy.
“It’s so important to hear what the 21-year-old is doing over the weekend,” he said. “What are they watching? What are they spending their disposable income on?”
It would be impossible to have a talk about media M&A without bringing up the Viacom saga, especially now that the deal to sell a minority stake in Paramount Pictures is off the table. The panelists agreed that Viacom still has a stable of good brands, and the new, “fresh” slate of directors could help turn the company around.
The group finished with a brief discussion of virtual reality. Everyone saw promise, but the consensus was that it’s way too early to invest in individual VR companies.
“This is like trying to buy a car company in 1920,” Siegel said.
And of course, Jimenez also hinted at more international Hollywood deals to come.
“Some of the things I can’t announce are some of the big production companies that are on the block that might be acquired by foreign buyers,” he said.