Social media, video games among areas ripe for M&As

Start licking your chops, investment bankers. After several years of hoarding cash, entertainment and media companies are poised to go shopping for deals in 2011, according to a report released Thursday.

“With the industry’s fast-paced shift to digital — and attractive levels of corporate cash reserves and private equity dry powder, (we believe) the catalysts are in place for more E&M deal activity” this year, says a study on dealmaking from the consultancy firm PricewaterhouseCoopers.

Among the areas ripe for mergers and acquisitions are international ventures, social media and videogames.

Comcast’s bid to merge with NBC Universal was the most no-table deal in the limelight in 2010, but the number of transactions in entertainment and media last year outpaced the average for other industry sectors. Deal volume increased by 3% to 804 transactions, while total completed and disclosed deal value dropped from $37.2 billion in 2009 to $33.5 billion in 2010. (Comcast-NBC U was not even included in those numbers since the deal didn’t close until this year).

PwC defines entertainment and media broadly to include everything from B2B software services to broadcasting to casinos.

Among the bigger deals last year was the $4 billion sale of pharma publisher IMS Health to Texas Pacific, the $4 billion sale of Liberty Media’s assets in Japan, the $1.4 billion purchase of Bresnan Communications by Cablevision and Grupo Televisa’s $1.2 billion purchase of a 35% stake in Univision.

So far this year, PwC’s tally includes 200 deals announced or pending with a value of $24 billion.

Look for a shift in the kinds of businesses that attract buyers. “As media content becomes increasingly interactive, look for business models to shift from ‘business paid for’ (advertising) to ‘consumer paid for’ (subscriptions and per-transaction payments),” said Bart Spiegel, a U.S. entertainment & media M&A director at PricewaterhouseCoopers. “The comparably higher stickiness of consumer-paid models should lead to higher valuation multiples in certain sectors.”

Another study out this week supports PwC’s conclusions about an uptick in deals. Among 500 execs polled at media, marketing and tech companies, 81% of those at outfits with revenues of $250 million or more said they expect to make an acquisition in the next 12-24 months, according to a survey by advisory firm the Jordan Edmiston Group and digital marketers Econsultancy. Only 27% said they expect to divest a property in the near term.

Among the most active buyers this year, PwC predicted, will be private equity firms. And while it may have seemed that private equity firms sat on the bench in the last year or so, the number of PE-backed deals actually increased from 126 in 2009 to 140 in 2010, and the announced deal value nearly doubled to $13.7 billion in 2010 vs. the year before.

Another bright spot: Bankruptcies are declining. Chapter 11 filings among entertainment and media companies dropped to 21 last year from 30 in 2009. “Fast-tracked emergences illustrate a continuing trend toward pre-packaged bankruptcies, which offer quick processing and are perceived to be less costly and less damaging to a company’s asset value,” said Thomas Rooney, U.S. entertainment and media mergers and acquisitions leader at PwC.

One thing is certain, PricewaterhouseCoopers concludes: Everybody in the biz will be keeping a close eye on the joint venture between Comcast and NBC Universal to see if the now-disparaged marriage of content and distribution can actually be successful.

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