H2: 2020 MEDIAtalk THE BRIGHT APPEAL OF M&A ii h2 2020 | mediatalk mediatalk | h2 2020 1 H2: 2020 MEDIAtalk A WORD FROM ANDY VINER GLOBAL HEAD OF MEDIA AND ENTERTAINMENT GLOBAL M&A: OVERVIEW 4 UK MEDIA M&A: OVERVIEW 10 Media in 2020 proved to be a remarkably resilient sector, buoyed in particular by increased demand for entertainment UK MEDIA M&A: HOT SECTORS 12 and related services. Globally, the value of media-related THE MEDIA PORTFOLIO 16 M&A topped USD $130 billion, a figure that underscored the market’s staying power in a remarkably difficult year. SPOTLIGHT ON THE US 20 And even though we saw a reduction in the number of deals LOOKING AHEAD TO 2021 25 announced in 2020, average deal values actually increased by around 14%. There was, of course, a significant divergence in how COVID-related restrictions affected different subsectors, with large numbers of companies directly vulnerable to lockdown policies and the newly cautious behaviour of consumers that went with them. While premiums were placed on assets and businesses with strong tech underpinnings and/or embedded data and digitalisation plans, deals targeting under-performing businesses were slower to materialise. Investors will now need to determine how to price in any necessary recovery period and the impact of corporate decisions taken to help businesses weather the storm. 2 h2 2020 | mediatalk mediatalk | h2 2020 3 A WORD FROM ANDY VINER continued That said, while revenue growth may be that. With its attractiveness to overseas slower initially through Q1, we anticipate investors and potential to bounce back, recovery to speed up over the rest of the it made up a big chunk of all deals struck year, and there could well be a shorter path through 2020, both within the UK and for M&A too. Globally, the media sector globally. Many of these deals focused, as retains significant upside potential, and deals globally, on companies looking to add to were noticeably picking up in H2 of 2020. PE or enhance their digital reach and targeting (private equity) has played a fundamental capabilities. role in keeping M&A rolling across the mid- In the world of entertainment, meanwhile, market, both in established areas of interest content is still king, and the persistent and in newer directions. PE houses recorded a battles over streaming capabilities have 19% increase in activity over the second half only strengthened the appeal of production- of 2020, as compared with H1 2020. related businesses. Digital publishing is also US media deal activity slowed in 2020 seeing a steady flow of deals as PE and trade compared to previous years, in the buyers vie for the best brands and assets. wake of recent historic market shifts. Interactive gaming remains another space to But the slowdown also created pent-up watch. demand to put cash to work and capture So in 2021, we may not quite see a return to new opportunities as consumer media pre-COVID deal volumes just yet; there are consumption habits change. The end of the still too many uncertainties to resolve. But the year brought a resurgence in ad spending, stage is certainly set for another very active which was a boost both to entertainment twelve months… companies and the media agencies that develop and place ads. Signs point to a busy We hope you find the latest edition year for deal flow and investment in 2021. of our report useful – do please share your comments or feedback In the UK, as around the world, few businesses at [email protected]. escaped unscathed from the pandemic’s blanketing effect on the economy. But pre-pandemic, the UK’s creative industries contributed more than GBP £111 billion to the UK economy, and the advertising and ANDY VINER marketing subsector made up a quarter of Partner, Global Head of Media & Entertainment 4 h2 2020 | mediatalk mediatalk | h2 2020 5 GLOBAL M&A OVERVIEW 2020 was a year with little relief for UNITED STATES To take one example, a consortium of FIGURE 1: GLOBAL MEDIA M&A DEALS BY TOP TARGET REGION IN 2020 investors led by Swiss venture capital firm many businesses, as the pandemic In the US, President Joe Biden’s celebrity- Blue Horizon Corporation – and including coiled itself around markets and studded inauguration bodes well for political Griffith Foods and PE backers Trustbridge intermittently constricted activity. But stability after four rambunctious years, Latin America 1% Africa 0.3% Partners and EQT Partners – announced a even if there is a bumpy road ahead to but it may not be so auspicious for all. The Middle East 1% USD $135 million investment in Livekindly. Australasia 3% recovery, we can see now that there are tech sector, for one, is likely to come under Focused on sustainable, cruelty-free health Central and Eastern Europe 4% certainly blooming pockets of optimism, renewed anti-trust scrutiny, and the new & beauty content, Livekindly has benefited Canada 5% administration looks ready to explore tax and exciting opportunities ahead. from heightened consumer interest in changes that could target capital gains. United States 31% environmentally-friendly products. Though the number of global media M&A Both these developments could spur M&A South Asia 5% deals declined by 30% year-on-year in 2020, activity: tax-rate increases could accelerate The US began catching up significant the second half of the year saw stronger the completion of transactions, while ground in the second half of 2020. Deal volumes return across the Asia-Pacific and corrective antitrust enforcement may force volumes had diminished markedly in H1, United Kingdom 8% US markets, with relative spikes in September the divestiture of certain brands or assets. but we saw a spurt of acquisitions targeting and December. US-based companies in Q3 and Q4, and The US remained top of the list of regions PE activity lifted investment in the mid- for both targets and acquisitions in 2020. Contrary to some expectations, the pandemic market. Crestview Partners, for example, Though other geographies have become more has not led to a complete paradigm shift. set its sights on a future rebound for in- active in the media sector, contributing to Rather, it has simply accelerated existing person events by committing USD $135 long-term trends, which in fact should a slight fall in the US share of overall deals million to Viad Corp, an Arizona-based Western Europe 16% since 2018, its status as a global powerhouse provide a measure of confidence from a provider of event marketing services. strategic perspective. True, many sectors remains undiminished. In 2020, 30% of global acquisitions targeted American may be feeling the pressure to fast-track Asia Pacific 26% digital transformation, but these adjustments companies, while 29% of global buy-side will remain relevant well beyond lockdown. deals originated in the US. Deals led by In economic terms, the vast spending American buyers fell by half (50%) in 2020 programmes and monetary policies now on the previous year, but deals targeting US in play around the world are likely to keep companies fell by a relatively modest 30%, THE US STAYED TOP FOR DEAL SHARE WITH 31%, WHILE ASIA-PACIFIC PICKED UP SHARE ON interest rates at basement levels for some demonstrating the market’s persistent allure 2019, AND WESTERN EUROPE AND UK SAW THEIR SHARES DECLINE. while yet – always a positive for investors. against even the most difficult of backdrops. 6 h2 2020 | mediatalk mediatalk | h2 2020 7 GLOBAL M&A OVERVIEW ASIA PACIFIC WESTERN EUROPE (EXCLUDING UK) FIGURE 2: GLOBAL MEDIA M&A DEALS BY TOP ACQUIRER REGION IN 2020 The Asia Pacific saw its share of global deal The speedy rollout of impressive test-and- By contrast, China’s share of global deals has M&A activity in Western Europe also picked volumes remain steady over the second trace systems in South Korea and Japan in H1 shrunk over the past couple of years, along up marginally in the second half of 2020, Latin America 0.4% half of 2020. Though year-on-year deal- may well have benefited M&A activity later with the amount of venture capital invested even if global deal volumes still slipped Middle East and Gulf Region 1% Central and Eastern Europe 2% making declined here as everywhere else, in the year: both countries recorded a higher into the market since 2018. Helping to fill that on 2019. The region saw 16% of deals on Asia Pacific improved its proportion of global volume of overall deals than the UK. Japan space, Tencent led a Series B funding round the buy-side, a 3% reduction on 2019. Its Australasia 4% deals as both a target and acquirer region led the way, both as an acquirer and target of USD $100 million for Versus Programming share of global deal volume as an acquirer South Asia 5% for the year – by 3% (to 26%) and 2% (to country, with a shifting around of publishing Network (VSPN) in October. The investment region fell by just 1%, to finish the year United States 29% 29%) respectively. As with previous years, assets. But South Korean production and will help further VSPN’s ambitions to grow the with 17% of global deals by volume. Canada 6% deals were primarily domestic, some intra- entertainment was also on the up: two reach of esports around the world by creating There were a slightly higher number of intra- regional; but 7% of acquisitions made by of the bigger 2020 deals involved South a dedicated institute and culture park. regional deals, compared to other regions. Asia-Pacific companies targeted the US.