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72% executives expect M&A market to improve in next one year: EY Capital Confidence Barometer

Six months back, 47% expected improvement in next one year. 75% of respondents said they either failed to complete or walked away from an M&A deal in last 12 months

According to the 18th Media and Entertainment Capital Confidence Barometer released by Ernst & Young (E&Y), executives are positive about the mergers and acquisitions (M&A) market, with 72% expecting it to improve in the next 12 months, up dramatically from 47% six months ago.

The Barometer provides a snapshot of M&E respondents’ findings, gauges corporate confidence in the economic outlook, and identifies boardroom trends and practices in the way companies manage their capital agenda. The research shows M&E executives are increasingly focused on acquisitions, supported by releasing capital via divestments. Their intentions are driven by confidence in business fundamentals and the near-term performance outlook along with a longer-term need to strategically position their portfolio for future growth.

A note by Will Fisher, Transaction Advisory Services Leader, EY Global Media & Entertainment, added, “Respondents also cite strong expectations for deal-making, with 60% expecting their M&A pipeline to increase over the next 12 months and 63% expecting a greater number of deal completions, compared with the previous 12 months. Among midsize and larger media and entertainment companies, the strategic imperative to pursue acquisitions remains strong.”

Approximately 55% of companies with revenues of US$ one billion or more intend to pursue acquisitions in the year ahead. Generally, M&E companies’ targets are businesses that add scale, differentiate their content portfolio, or fill gaps in their technology, talent or content. At the same time, 74% of executives say that their last portfolio review identified an asset to divest. They are looking to shed businesses that no longer fit their core strategy, have slower growth profiles than their core assets or require significantly more capital allocation than core assets.

Confidence in performance

Executives remain highly confident in their current performance – 100% expect improving or stable corporate earnings in the sector. What’s more, 100% also see the global economy in which they operate as stable or improving. From a position of confidence, media and entertainment executives are exercising deal discipline on the buy side and exploiting opportunity on the sell side – engaging more tactically above the fray of heated M&A competition and heightened regulatory and political uncertainty.

Heated competition

The number of media and entertainment executives who see an increase in deal-making competition in this Barometer (88%) has almost doubled in six months, mainly (67%) because of a surge in activity by private equity funds. Three-quarters (75%) say they have failed to complete a deal or have walked away from one in the past 12 months, mainly (61%) because of competition from other buyers or disagreement on price/valuation.

Changing boardroom agenda

Portfolio transformation is the top priority for boardrooms, with 73% of respondents identifying it as one of their top three concerns for the next six months. At the same time, boards’ attention has pivoted somewhat toward increasing economic and political uncertainty (now up 25 points in six months, to 40%), and regulatory and government intervention (now up 18 points in six months, to 21%). Digital transformation and shareholder activism remain important, with 21% and 38%, respectively, of boards citing them as important.

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