Can shifts in the economy be blamed for the drop in UK media M&A activities?
2023 has seen a significant fall in M&A deals in the UK media sector. Previously, this area reached high levels in 2021. Various economic factors have caused a 15% drop, the lowest in ten years. These include rising interest rates, inflation, geopolitical uncertainties, and new regulations.
Even in these tough times, some deals have stood out. Dealogic shows fewer UK M&A deals happened, but the number of deals stayed quite stable. For example, Danaher Corporation’s purchase of Abcam and the partnership between Lithia Motors and Pendragon show strength. Also, the events and publishing sectors continued to thrive, against the odds.
Introduction to M&A in the UK Media Industry
The UK’s media sector M&A scene is diverse, covering both public and private deals. Private deals are more common. In 2023, firms like Latham & Watkins have been crucial in major deals. Norsk Hydro’s growth through acquisitions shows the sector’s lively investment activity.
Even with a 6% drop in media and marketing deals in Q3, the industry is still active. An economic upturn could boost M&A activity, with solid investor capital helping. In Q3 2023, 51% of media deals had private equity support, slightly up from before. This stresses private M&A’s role in economic recovery.
In Q3, TV and film deals made up 42% of the media sector’s activity, up from 27% before. Ecommerce was 16% of marketing deals, and advertising was 13%. Tech-driven transactions led, with martech companies at 77%, mediatech at 15%, and adtech at 8%. This range shows the industry’s adaptability in tough times.
Despite a 11% drop in the Moore Kingston Smith Index in Q3, some firms thrived. Kin + Carta’s shares jumped 32%, while S4 Capital’s fell 46%. Notable deals include Havas’ buys in the UK and Mumbai. These moves point to focused investment in the media sector even with financial limits.
Plans for economic recovery could raise M&A volumes with ready investor capital. Yet, UK M&A faces regulatory hurdles and high financing costs. Overcoming these issues, the focus stays on private deals and strategic buys to keep the media sector moving.
Key Drivers of M&A Activity in the UK Media Sector
In the last ten years, big tech companies like Warner Media, Amazon, Google, and Facebook have expanded their online media. They did this by buying smaller companies in London. These buys help them get better at online video, data analysis, and social media.
London’s fame as Europe’s tech hub makes big tech firms buy smaller startups. Amazon bought Deliveroo, and Apple took over Shazam. This shows how they focus on getting new tech and media skills.
The UK media sector has grown globally through M&A. Comcast’s buying Sky and Banijay Group getting Endemol Shine made one of the biggest media companies. These big deals show the UK media is valuable for international companies wanting to grow their content.
There’s more checking of these deals now, affecting how and when they happen. Deals like the Sky buy by Fox were slowed down because of privacy and fair play issues. A new law adds more checks, making it hard to get deals done without really understanding the rules.
Now, companies also think about environmental and social things before buying others. Like when Norway’s Adevinta bought Shpock because they care about being green and doing good. This shows how important these values have become in deciding about deals.
U.S. private equity companies are buying more in the UK, with deals up 35% from 2022 to 2023. This jump to 181 deals from 134 shows they keep investing, even when times are tough.
The UK is still a top place for M&A deals, leading in Europe. The big deals in early 2024 show it’s a strong time for investment. High interest rates also help push up M&A in the media world.
Impact of Economic Conditions on UK Media M&A
Economic conditions greatly affect M&A in the UK media industry. The Bank of England’s monetary policy and inflation impact consumer spending. This changes M&A pricing and how sectors perform. The Technology, Media, and Telecommunications sector stands out with 955 deals in 2023. It was the busiest sector.
Although UK M&A activity dropped by 17% to 3,628 deals, it didn’t reduce investor focus on profit. The volume of private equity deals reached a new high, making up 42% of transactions. This shows that investors remain confident even in tough economic times.
In 2023, the UK’s deal value fell to £88 billion, a 41% decrease from 2022. The deal volume in the second half of 2023 was one of the lowest in five years. However, certain sectors like health industries saw deal values soar by nearly 80% to £15 billion.
Companies with potential for growth secured higher valuations. Even with a 24% fall in deal value in energy, utilities, and resources, these sectors were still attractive with deals over £18 billion. Private equity’s role in media and marketing indicates strong investor belief. This is despite the economic downturn.
UK M&A in the Media Industry
The UK media industry remains strong despite economic problems, keeping M&A activity steady. There are positive signals for future growth and better value assessments next year. During the first quarter, marketing services led with 88 out of 126 deals, which is about 70%. Notably, technology played a big role in 35% of these deals, with martech companies being the focus for 56% of them.
The TV, film, and entertainment sector was quite active, making up 18% of all transactions in the first quarter with 23 deals. Tech deals were prominent here too, making up 44% of the sector’s deals. Meanwhile, music-related transactions jumped to 39% from a mere 6% in the last quarter of 2022. On the publishing side, deals doubled from the quarter before with 15 transactions, most of which were in consumer publishing.
Private equity transactions had a key role, with big firms like WPP and Publicis making four acquisitions each in the first quarter. This shows a growing focus on value and strategy among stakeholders for long-term success in the media world.
Though debt financing issues have slowed down some investments, firms with available money have become more active. This shows that media M&A is crucial for the sector’s sustained and strong growth, even when facing tough economic times.
Trends in Media Sector Takeovers
UK’s media sector is changing because of different ways companies are being financed. Private equity groups are now more influential. They are part of a big change happening worldwide. Companies like Warner Media, Amazon, Google, and Facebook are buying smaller ones. These smaller companies work in online video, data, and social media.
London is a key place for tech in the UK. This has led to big deals like Amazon buying Deliveroo and Apple getting Shazam. There have also been major moves like Comcast buying Sky and Banijay taking over Endemol Shine. The increase in deals has brought more checks on how these deals affect privacy and competition.
Private equity is finding new investment chances, especially in special deals called secondaries. These deals help original investors get their money out. The drive to join together in media is also because people expect more deals in 2024. These deals will be influenced by new tech and better regulations. A deal showing interest in being more eco-friendly and responsible is Adevinta ASA’s purchase of Shpock.
To sum up, there are lots of deals expected in the UK media sector. These will bring together old and new media types. The sector is growing, with streaming becoming even more important. Being good at data analytics and targeted ads will change who leads the market. It will also bring companies closer together in the media world.
Challenges and Opportunities in Media M&A
The media M&A scene is a blend of hurdles and key chances in the UK media sphere. Factors like economic shifts and higher costs for traditional debt financing act as barriers. They are made worse by more regulatory checks. The stats from the first quarter of 2024 highlight these issues. During this time, 106 UK deals were completed. This was a 28% increase from the end of 2023. Still, these shifts in the market can lead to big chances for smart business changes.
In marketing service deals, brand & design grabbed 17% and data & analytics took 16%. This shows the wide range of choices in the UK’s lively media sector. Tech-led deals made up 18% of the deals, a small drop from the previous quarter. Yet, there’s a strong ongoing shift towards using more tech in business. Private equity, even though down by 9% from before, was part of 45% of the deals in Q1. This highlights the big part private equity plays in overcoming M&A challenges.
The market’s changing share values add another twist. A report showed a 7% increase in the Marketing Services Index. Nine out of fourteen companies saw their share prices go up. On the other hand, Stagwell’s shares fell by 6% after reporting financial errors in 2022. Companies like Brainlabs and MSQ, very active in 2023, keep shaping the media sector with their deals. This is despite the overall market dropping by 15% to its lowest point in ten years.
In essence, these factors point out the obstacles and chances in the UK media sector. Although there are ongoing hurdles, the area is filled with opportunities. These are for those ready to adjust to new market conditions and make smart business shifts.
Sector-Specific M&A Hot Spots
The M&A outlook for 2024 is pointing towards intense activities in software, telecommunications, and media. These sectors are becoming hotspots for major Media M&A actions. Investors are showing a lot of interest in software because of its subscription models. It’s mainly private equity firms driving this interest forward.
Last year, software deals were nearly two-thirds of all transactions in this field. In 2023, private equity was behind more than half of the technology sector’s deals, a significant jump from 2019.
Telecommunications is also brimming with opportunities for growth. Market consolidation is expected to reshape the telecom landscape. Especially, streaming services are entering a period of major changes.
The tech sector’s robust activity is evident in over 5,000 software deals in early 2023. This highlights its appeal and resilience to investors.
The media sector is ripe for strategic investments. Technology acquisitions are a key focus here. In 2023, a whopping 85% of TMT sector deals involved technology.
Investors are now valuing profitability over simple revenue increase. This change is likely to decide which TMT entities attract more M&A interest in 2024.
Even with a 60% dip in global tech deal values in 2023, the sector’s deal volume remains high. Tech companies are proving to be crucial in the media industry’s evolution.
This means stakeholders will keep focusing on technology, telecommunications, and media. These sectors will be at the heart of future M&A activities.
Regulatory Changes Affecting Media M&A
UK laws and policies play a big role in media M&A scrutiny. The Companies Act 2006 and the National Security and Investment Act shape media M&A activities. This includes big changes like the end of the European Commission’s ‘one-stop shop’ for mergers, meaning more checks are needed after Brexit.
New policy changes make the M&A rules even trickier. In 2023, the value of UK M&A deals dropped from £191 billion in 2022 to £109 billion. But, the number of deals stayed almost the same. This shows how important it is to understand the law well.
The UK’s Competition and Markets Authority made Meta sell Giphy. This was due to concerns about its effect on advertisers. Microsoft also had to change its plans to buy Activision Blizzard for $69 billion. These cases show how media M&A is watched closely by regulators.
In Brazil, approval for deals is now much faster, taking about 17 days in 2023. 93% of transactions under the National Security and Investment Act got the green light within 30 working days. Businesses must keep up with these fast-changing rules.
The US regulators are being stricter, like when the FTC looked into Amgen’s $27.8 billion deal for Horizon Therapeutics. Because of global scrutiny, over $361 billion in deals faced challenges. Many deals needed big changes to get approved.
Given the tough scrutiny in media M&A, legal experts and companies need to be smart. They must fully understand the rules and do thorough checks. This way, they can stick to the law and make their deals work in these changing times.
Conclusion
The future looks bright for UK media M&A, heading into 2024 with hope and smart plans. The push from tech has changed the media world a lot. In the first quarter of 2024, there were 106 deals. That’s 28% more than the end of 2023. Brand and design were big, making up 17% of deals, with data right behind at 16%.
Even though tech deals dipped a bit to 18%, the focus on new ideas stays strong. Private equity’s role dropped to 45%, but it might pick up as interest rates fall. The Moore Kingston Smith index showed a growth of 7%, finding middle ground between the S&P 500 and FTSE 100.
Firms like Kin + Carta and Hakuhodo have seen their shares go up and down. Companies like Surge and Stagwell are going through tough times. But, the media world keeps showing its toughness, with big moves still happening. Deals by Brainlabs and The Independents show how active the sector is, always ready for what’s next.
As the world changes, the UK media world is ready to keep up, blending old strengths with new tech. This mix of readiness to change and smart investments will lead the way. It promises growth and new ideas as everyone adjusts their plans for the future.
