Execs expect more media and entertainment M&A over next two years

DetailsEditor | 16 June 2015

As M&A becomes a vital tool in media firms' futures, an overwhelming majority of company executives expect to see more cross-sector convergence deals over the next two years, says research by global law firm Reed Smith.

Indeed the study of 100 senior corporate executives, carried out in partnership with Mergermarket, reveals that 84% of technology, media and entertainment (TME) companies believe the deal flow will only get stronger in a changing M&A landscape for TME firms.

The report Wired up: The convergence of technology, media and entertainment explains that the ramp in business is being driven by an increasingly fierce battle fought by TME firms who are attempting to gain a competitive edge in the market. Reed Smith said that 2014 saw new levels of convergence deals amounting to US$34.5 billion, with this trend predicted to increase further.

The report also revealed that cross-sector convergence varies widely across the TME sectors. Entertainment businesses were found to be the most willing to branch out, with more than a third planning non-entertainment purchases. Reed Smith regards this willingness as having the potential to put acquisitive businesses ahead, but, it warns that they must be aware of the potential risks involved in cross-sector acquisitions.

Companies seeking growth are increasingly crossing borders, with nearly three-fifths of TME firms saying that their next acquisition is likely to be outside their home market. Of those businesses in search of cross-border opportunities, 37% say they are most likely to target Asia-Pacific, followed by Western Europe (23%) and North America (17%).

These expectations must be set against the need for firms to understand the political and regulatory risks in the target markets, said Reed Smith. "One major challenge for cross-sector acquirers is understanding a new area of business. This can be a steep learning curve," explained Gregor Pryor, partner and co-chair of the firm's global Entertainment and Media Industry Group. "If you are a big tech company, the biggest challenge is just understanding the space. Film doesn't operate in the same way as music or the same way as computer games. Companies need to learn about a new sector."