Media’s New M&A Recipe: 1-Part Private Company Buyer, 2-Parts Seller Scarcity
Despite serious headwinds, storied content and entertainment franchises still matter
Background to this week’s M&A-focused newsletter.
I regularly write about M&A, because I’ve done so much of it throughout my 30+ year career from both sides of the table (having both bought and sold several leading media and tech companies - and with over $3 billion of deals under my belt … and counting). A central part of what we do at Creative Media continues to be M&A: I’m deeply involved in music catalog and IP acquisitions. I’ve personally been responsible for some of the most iconic music IP deals of the past decade, including Boston, Devo, Count Basie, Air Supply, Sarah McLachlan, Sheila E, Wailing Souls … even facilitating one of the biggest transactions of all time, PRINCE!
Welcome to Media’s New M&A Recipe!
Unforgiving public markets, industry disrupting streaming headwinds, and now newly transforming generative AI -- what’s a traditional media and entertainment company to do? Explore strategic alternatives, of course, which frequently means, “sell!” And, as I predicted last year, sell they did (or are doing), at a pace we haven’t seen in the industry for quite some time.
Fortunately for many sellers, despite all these daunting downward pressures, they benefit from the upside of the scarcity that flows from being amongst the handful of remaining storied entertainment brands or companies that boast deep pools of precious IP (including prized franchise assets). Scarcity pumps up seller financial outcomes, even in today’s period of much industry doom and gloom.
I predicted that the M&A fuse would be “lit” this year.
At the end of last year, I proclaimed that “The M&A fuse will be lit and spark more consolidation” in 2024 – and given recent M&A activity – I think it’s fair to say that I got this right (at least for now). Just in the past few days, private equity firm Silver Lake agreed to take long-time entertainment player WME private, and Skydance Media cemented a 30-day exclusivity period to become Paramount’s M&A private dancer. Notice a pattern here? Nowhere is there a peep from any potential Big Tech or public media company buyer.
Welcome to a new and very different period of entertainment industry consolidation. Now it’s all about privately held stashes of cash.
It’s certainly not your traditional script from the past several years that included Amazon buying MGM for $8.45 billion and Discovery merging with WarnerMedia for $43 billion.
Several obvious “moment in time” factors drive these new private money-led M&A realities.
First, there’s antitrust.
As much as new media behemoths Apple, Alphabet/Google and Meta may want to follow Amazon’s lead and pay up big-ly to fuel their own streaming services, the Federal Trade Commission’s Lina Kahn and her self-described “entrepreneurial” antitrust activists (to be clear, I use that term with respect here) have stopped them in their tracks (at least for now). Each one of those Big Tech mega players already finds itself in Khan’s antitrust crosshairs. Why push their luck? Who knows if they’ll ultimately be “too big to nail” (as in, win or lose their individual antitrust battles – after all Microsoft won its Activision Blizzard gaming battle), but Khan’s fed-fueled fear alone seems to be having its desired effect.
And then, of course, there’s Big Tech’s current obsession with artificial intelligence.
All of these trillion-dollar plus valued giants are “all in” on this AI “spAIce race” – and they’re being rewarded handsomely for it by Wall Street investors. Big Tech goes where the money goes, and genAI’s “next big thing” dwarfs media’s value to their overall tech (and financial) eco-systems. These tech-first media titans just don’t have time to be bothered with media M&A right now.
Finally, there’s little appetite or even capacity right now for those traditional media companies left standing – Disney, Discovery Warner Bros. and Comcast’s NBCUniversal - to hook up right now.
Antitrust concerns abound here too. But perhaps even more importantly, Wall Street has seen little success by simply stacking challenged media companies together.
So as I wrote in the context of last year’s Disney acquisition rumors, that leaves private money – usually in the form of massive private equity funds -- as the buyers de jour. That takes us back to Silver Lake and Skydance, and the flexibility, freedom and overall logic of the private markets stepping into this new wave of media and entertainment consolidation. While there’s certainly prestige and market liquidity that come with trading in the public markets, many public company CEOs wish they had it the other way.
Privately held companies face no quarterly public earnings reporting requirements, leaving their management teams free to think and plan longer-term. Taking companies private pulls them back from Wall Street’s relentless and unforgiving “what have you done for me lately?” microscope that frequently leads to a frenetic search for short term gains that result in long-term pain. We just saw that kind of public pressure boil over in real-time in connection with Disney and CEO Bob Iger’s bitter shareholder proxy fight.
Private equity also benefits from its own tale as old as time – a well-worn industry agnostic script that cuts costs across the board, leverages new technology to accelerate revenues, re-casts storied brands as innovators in heady new tech-transforming times, and then pulls the rip-cord five to seven years later when it sells its repackaged “asset” for an extremely healthy financial return. The deals in this movie may be smaller than the massive media M&A matchmaking of old, but their pace – and the financial returns that go with them -- may continue to pick up as the number of potential targets continues to shrink.
Media’s new private buyer game-plan has played out over and over again this year.
To acquire Paramount, privately held Skydance Media is reportedly partnering with other major private equity players in a complex deal that may keep the company public after all. But if that deal were to fall apart, private equity fund Apollo Global is ready to step in with its recent $27 billion. Although Chairman Sheri Redstone apparently never seriously considered that offer, you can bet she and her board have it right by their side to use it as a stalking horse. And then, of course, Byron Allen’s privately held Allen Media Group is also ready to play, after previously submitting its own $30 billion bid.
Earlier, in a pair of February deals, Jeff Zucker (whom I predicted to be a likely M&A media buyer this year) joined forces with private equity firm Redbird IMI to buy All3Media from Warner Bros. Discovery and Liberty Global for a cool $1.45 billion; while privately-held NTWRK bought Complex from BuzzFeed for $109 million. So this new media M&A recipe is certaintly cooking.
What’s on tap for the rest of the year?
Apart from Paramount, Warner Bros. Discovery and individual underperforming Disney assets (its linear channels, for example) are still likely very much on the table. Here too the most likely buyers are now private equity for all the reasons noted above. Wash. Rinse. Repeat.
There’s no quibbling with the enticing aroma of this new media M&A recipe to both financially savvy private buyers and financially challenged media sellers. But the question becomes whether the new financial cooks in the media kitchen will conjure up a more or less palatable overall creative ecosystem years down the line.
In addition to representing and advising you and your company on M&A transactions, check out how my business & legal firm, Creative Media, can help you. Reach out to me at peter@creativemedia.biz to discuss.
