Fitch: Media & Entertainment M&A Activity to Remain Steady
Fitch Ratings said merger and acquisition activity within the media & entertainment sector is expected to remain steady in the near to intermediate term. This is being driven by secular changes within the sector, geographic expansion and growing digital, data and analytical capabilities. Accessible credit markets have also contributed to the consolidation within the sector.
Consolidation among television broadcasters will likely continue, albeit at a slower pace, if the FCC eliminates the ultrahigh frequency (UHF) discounting, Fitch said. Over the past two years, there has been significant M&A activity in the sector, but given that many of the large aggregators will be near (and potentially exceed) the 39% audience reach cap, the pace of consolidation will slow. However, a number of broadcasters still have room within the 39% cap and may continue to drive consolidation in the industry.
Recently announced transactions include Sinclair’s acquisition of Fisher Communication ($373 million); Gannett’s planned acquisition of Belo ($2.2 billion); and Tribune’s planned acquisition of Local TV Holdings ($2.7 billion). Fitch believes these transactions make strategic and operational sense, as the combined station groups will provide the consolidated companies with increased scale that will benefit them during retransmission negotiations with multichannel video programming distributors (MVPDs). This is expected to support continued growth in high-margin retransmission revenues. Fitch recognizes that the growth in high-margin retransmission revenues will be somewhat offset by increases in reverse compensation fees to the networks, driven by the leverage that broadcast networks retain over the local affiliates. However, broadcasters should continue to see a positive net impact.
Media service companies like ad agencies and media measurement differentiate themselves on managing large databases and creating actionable and predictive analytics, Fitch added. Planned mergers of Publicis and Omnicom and the acquisition of Arbitron by Nielsen are examples of increasing the available data base to create analysis, tools and metrics that give advertisers a better product and service. Fitch expects this type of M&A activity will continue and recognizes the potential for additional consolidation among the global holding companies.
Fitch anticipates most deal sizes will be less than $5 billion, as the vast majority of acquisition activity will likely comprise small bolt-on acquisitions. For Fitch’s rated portfolio, the conglomerates continue to carry meaningful liquidity. Typically, most ratings allow for additional leverage for a short period (usually around 12 months), assuming the company’s articulated plan to deliver is achievable.