Technology and Media Consolidation Fuels M&A Activity
As expected, mergers and acquisitions activity in 2018 is off to a strong start with deal value already reaching $2 trillion this year. Tax reform, which lowered the corporate tax rate from 35% to 21% has certainly impacted activity as many companies are already putting their tax savings to work in deals. One interesting trend we’ve seen so far is continued consolidation in the technology, media, and telecommunications (TMT) space, which is driving up deal value.
Sprint and T-Mobile to Merge
Sprint and T-mobile have decided to merge for $26.5 billion. The companies claim that the merger will build a 5G network, which will deliver the “highest capacity network in US history.” The reality, is gaining scale is necessary to compete with Verizon and AT&T, the number one and two players, respectively. Both Verizon and AT&T have executed acquisitions to grow. Most recently, Verizon has focused on building its digital capabilities by acquiring Yahoo’s assets and AOL under a new division called, Oath. AT&T is still hoping to finalize the acquisition of Time Warner, which would boost the company’s access to prime content like HBO and CNN. The fate of the AT&T - Time Warner deal will be announced today, June 12, at 4PM EDT and the Department of Justice's decision will likely impact many of the deals in the TMT space including the Sprint and T-mobile merger.
Comcast, Disney Battle for Fox Media Assets
Comcast and Disney are fighting over Fox’s media assets. Back in December, Fox agreed to sell to Disney for $52 billion in stock, but now Comcast has prepared a $50 billion in cash offer. Disney has faced competition from Netflix, Amazon, Apple, and Google and had hoped to use this acquisition to move into digital streaming. Comcast, the owner of NBC and Universal Pictures, also wants to gain a foothold into streaming and add new content to its distribution network.
Sony Buys 60% Stake in EMI Music Publishing
Just earlier this week, Sony agreed to purchase an additional 60% stake in EMI Music Publishing in one of the biggest music deals. The $2.3 billion deal will give Sony, already the top publisher in music, control over the largest library of music content. With this acquisition, Sony CEO Kenichiro Yoshida executes his strategy to stabilize revenue streams by acquiring the rights to entertainment content.
“The rise in digital streaming is also expanding songwriter royalty revenues, with Sony capturing value as manager of the copyrights backed by direct deals with the likes of Spotify, Apple Music, Google Play, SoundCloud and YouTube,” Macquarie analyst Damian Thong said in a report.
This summer, I expect many of us will be listening to Spotify or SiriusXM on our drives rather than a CD or purchased iTunes songs. The move from owning entertainment outright to streaming it, is reshaping the entertainment industry and if the blockbuster deals noted are approved, we’ll likely see even more deals in this space. Acquisition is one of the fastest ways a media company can snap up important digital assets to ensure it remains relevant and profitable.
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David Braun is the Founder and CEO of Capstone Strategic and author of Successful Acquisitions: A Proven Plan for Strategic Growth. Follow him on twitter @CapstoneStrat or email him at Growth@CapstoneStrategic.com.
* A version of this post was published on the Successful Acquisitions Blog.
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