BDO analysis of M&A data for the media industry shows how 2016 was a bumper year for cross-Atlantic deals involving companies in USA and the United Kingdom.
The trend is one of several identified in the latest Media Talk report from BDO UK. The report offers an in-depth study of global media M&A activity during 2016, as well as a look at what is in store for 2017.
The report’s findings also illustrate how old borders between media and tech keep crumbling. Media companies are increasingly focusing on leveraging new technologies to stay competitive, often using M&A as a means to achieve this goal.
In many ways, 2017 picks up where 2016 left off, with three trends continuing to dominate the media industry – and by extension M&A: emphasis on high-quality content, new content distribution methods and revenue models, and increasing convergence of technology and media to create new user experiences and new insights in user behaviour.
Special relationship rebounds stronger
Since the financial crisis, transatlantic media M&A activity levels have generally been rising. The end of 2016 put a thick line under this trend with the £18.5 billion mega deal between 21st Century Fox and Sky.
The total value of US acquisitions of UK media businesses reached £23.9 billion in 2016, easily surpassing the previous record of £17 billion set back in 2013. UK to US deal levels were also up in 2016 compared to the previous year. One such UK-US deal was Informa Group’s acquisition of Penton Media, a New York-based provider of B-to-B communication and information services, in a deal worth $1.56 billion.
Source: Media Talk report
2016 also saw a great deal of political turmoil, particularly in USA and the UK. A hard Brexit for the UK and uncertainty about President Trump’s intentions in relation to international trade seem to hang as dark clouds over the M&A prospects for 2017.
However, there are several reasons why I am quite confident that transatlantic media M&A will continue to show good figures in 2017 and beyond.
One reason is the special relationship between USA and the UK. This also extends to the media industry. To borrow a phrase, the two countries have everything in common, except, of course, language. More seriously, though, the shared language, and, to a degree, culture – both in regards to media and business – matters greatly. The media industry is also very strong in both countries, with many companies on both sides of the Atlantic looking to consolidate positions through M&A. Finally, the pound’s recent drop in value means that UK media companies offer even better value for money for American buyers.
Proof can be found in the deal figures for the UK, which generally illustrate a challenging second half of the year. The UK media sector, on the other hand, recorded its second highest level of combined annual deal value since 2004.
The new Media Talk report explores this transatlantic trend in more detail and includes a special section on M&A in the US media industry.
Agencies focus on global M&A
On an international level, the UK was the second most acquisitve country behind the US, accounting for 10% of all global media acquisitions.
Global 2016 media M&A deals by acquiror region. Source: Media Talk.
A similar picture emerges when looking at acquisition target country.
Global 2016 media M&A deals by target region. Source: Media Talk.
Many acquisitions came from large agency groups, who continued to have a global approach to M&A in 2016. The best illustration of this was perhaps Dentsu from Japan, which made multiple acquisitions in Europe, Asia, Australia, India, US, Canada and South America.
While the likes of WPP, Omnicom and IPG were slightly less prolific on the acquisitions front during 2016, a cross-border approach to deals was still evident for each of them.
In an extremely competitive market driven by an increasingly global economy, I think that the desire to tap new markets and innovations will continue to drive M&A among the large agencies.
Tech continues its M&A rise
The increasing appetite for technology-enabled media also continued to drive deal flow, with digital media, online and analytics now representing nearly 20% of all deals..
One example is programmatic ad-buying where software is used to automatically buy advertising. According to an Internet Advertising Bureau study 28% of the digital display market was traded programmatically in 2013. The following year that figure was 45%. By 2018, it is projected to rise to between 70-80%.
Media companies definitely have an appetite for developing a deeper understanding of programmatic advertising, and play a part in shaping the market as it progresses. As a result, M&A in the programmatic sector has been heating up. The same is happening to funding. For example, Sky invested $10 million in DataXu, a leading provider of programmatic marketing analytics, data management and media activation software, in early 2016.
It is an example of wider trend, covering many other areas such as data marketing and analytics.
The media and technology industries are converging, as large corporate clients –and the media and advertising companies themselves – want to leverage data to drive efficient marketing and increase customer understanding.
Today, creatives in media and advertising to some degree play a secondary role to data scientists. Both in regards to company decisions and what M&A targets their companies pursue.