More Media And Entertainment Companies Expect To Pursue Acquisitions In The Next Year Than At Any Time In The Last Two Years
May 20, 2014 at 7:34 AM (PT)
Media and entertainment companies are more confident in the global economy than ever before, according to a recent survey of senior executives conducted by EY for the 10thCapital Confidence Barometer: Media & Entertainment. The report shows 64% of executives believe the state of the global economy is improving, compared with 59% one year ago. Executives are more confident in the likelihood of closing deals (33% compared with 23% a year ago), and coupled with a narrowing valuation gap, this is creating momentum to get deals done.
The report is a survey of senior executives from large media and entertainment companies around the world that gauges corporate confidence in the economy, identifies boardroom trends and provides insight into companies' capital agenda.
Respondents' confidence in the availability of credit and financing is at its highest level in five years, which provides a solid platform for deal-making and has resulted in media and entertainment companies significantly increasing their borrowing from the previous year. Eighty-five percent of respondents believe credit availability is either stable or improving, and 52% of respondents indicate it is improving, compared with 36% one year ago. Thirty-five percent of executives indicated they have debt-to-capital ratios greater than 50%, which is up from 17% the year before, which shows a dramatic increase in borrowing. Perhaps the greatest indicator of the industry's confidence in credit and financing availability is that 51% of executives plan to use debt as their primary source of deal financing during the next year, compared with only 21% one year ago.
"Media and entertainment companies have significantly increased their borrowing the past year, which indicates a combination of greater deal-making activity, paying down debt and returning capital to shareholders," said EY Global Media & Entertainment Transaction Advisory Services Leader TOM CONNOLLY. "This increased availability of credit and growing confidence in key economic indicators shows that more media and entertainment executives plan to pursue acquisitions now more than at any time the past couple of years. However, they need to move quickly – with fewer assets on the market, valuation gaps will widen."
Other key findings include:
- Only 11% of executives think the economy is declining; 25% believe it is stable and 64% that it is improving.
- Media and entertainment companies that hired aggressively after the cutbacks of the 2009 financial crisis and now optimizing skillsets and the makeup of their workforce. 21% of executives say they will reduce workforce numbers, up from 13% last year; 21% will hire, down from 44% last year and 58% will keep their workforce its current size, up from 43% a year ago.
- The two largest trends affecting acquisitions in the media and entertainment industry are digital transformation (61% of respondents) and "future of work" issues (43% of respondents).
- Ninety-two percent of executives see political, regulatory and emerging market instability as the greatest economic risks to their businesses during the next year.
- Sixty-five percent of executives expect deal volumes to increase during the next year, with 98% of respondents believing deal volumes will either increase or remain the same.
- Executives strongly see deal sizes increasing, with 52% of respondents expecting deals during the next year to be greater than US$251 million, up from 21% the previous year.
- Thirty-four percent of executives expect to pursue acquisitions during the next 12 months, a continuation of a rising trend.
- The valuation gap between buyers and sellers in narrowing, with 41% of executives believing the current valuation gap is less than 10% compared with 28% one year ago.