It’s hard for LionTree CEO Aryeh Bourkoff to sit still these days. During an hour-long interview at his Madison Avenue office, staffers frequently, and discretely, show him notepads with names of clients needing urgent advice from one of the most popular strategists in tech, media and telecom.
“I don’t know a single media company today that is not considering a transformative deal,” Bourkoff, 45, says. “There’s no subsector of media that’s so strong, in and of itself, that it doesn’t need more scale.”
If he’s right, and buyers are interested, then that’s good for LionTree. The investment and merchant bank Bourkoff created in 2012 became a go-to media deal-maker after it helped Liberty Global buy Virgin Media, Verizon acquire AOL, and Charter Communications take Time Warner Cable. Now it’s advising TiVo and is working with Viacom on its negotiations with CBS.
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Bourkoff acknowledges that valuations for media companies are unusually high, making him “cautious” about what might happen if inflation or interest rates rise. Yet he believes the deal market will remain strong as companies reassess their roles in an increasingly internet-driven media order. Advisory firm PwC says that media and telecom deals in the first quarter “showed no signs of slowdown after a record-setting 2017” — although, it added, for the first time in years, the market was driven by private equity investors, not megadeals.
Private equity players will stay in the game, the LionTree chief says, despite growing charges by content creators that they too often slash costs and sacrifice quality. In April, The Denver Post published a startling editorial calling on its hedge fund owner to sell the publication to an entity that’s “willing to do good journalism.”
Bourkoff, however, says that private entities should have a bigger role in media deal-making. The reason: “Companies that are in transition should, by and large, not be public” where they must impress impatient shareholders. He also believes that more splashy megadeals will come, especially as telecom and tech giants warm to the idea of becoming conglomerates, housing several distinct businesses.
Many big media companies ditched that model following the collapse of AOL-Time Warner, which seemed to demonstrate that it’s too difficult to corral operations and egos driven by differing agendas. That doesn’t seem to worry Amazon, which is expected to spend $5 billion this year on video productions.
“In a lot of ways, it is the new ITT Sheraton,” Bourkoff says, referring to the behemoth that, at its height in the 1960s and ’70s, owned more than 350 disparate companies, including Sheraton hotels, Avis Rent-a-Car, Hartford Insurance and Wonder Bread.
Tech and telecom companies have several reasons to want Hollywood-style entertainment in the mix. Among other things, it opens doors overseas. “Ninety percent of the Middle East and Africa is under the age of 30,” he says. “That’s a huge region to tackle for media. … This is a moment to go around the globe and export those assets.”
But media moguls will have to settle for supporting roles when they join companies that primarily sell wireless subscriptions, technology, merchandise or ads on social media. Media “is not the be-all and end-all of the service offering,” Bourkoff says. “It is an application. It is a premium offering. It is a product. It is not the platform.”
“I don’t know a single media company today that is not considering a transformative deal.”
Yet doesn’t the rise of Netflix tell us that media is a fine stand-alone business, especially when leaders focus on what they do best?
“It’s not easy to compete with Netflix,” Bourkoff acknowledges. Even so, “Netflix is on the stand. It’s going to be tested. Every platform player or content company is going after a direct-to-consumer offering, which will create more fragmentation and competition for Netflix.”
Confident as he sounds about long- term trends, Bourkoff says that recent surprises in media make him unsure about the short term. He didn’t expect people to sour so quickly on tech companies after Facebook disclosed how much user information it shared with Cambridge Analytica, a political data firm the Trump campaign used in 2016. He now believes it’s “almost inevitable” that the government will establish online privacy rules.
Dealmakers also are watching, “with anxiety and intrigue,” the Justice Department’s antitrust challenge to AT&T’s $85 billion plan to buy Time Warner. The unusual case, involving a vertical merger between companies that don’t directly compete, “has implications for not only the merger environment in media, but also whether we should be focusing only on horizontal deals, or global deals, or just the U.S.,” Bourkoff says.
Meanwhile, the LionTree chief is surprised by swings in trading markets. They are “more volatile than they’ve been in a decade,” he says. And this year’s elections represent what Bourkoff calls a “fulcrum moment” as prognosticators see growing signs that Democrats could take control of the House and possibly the Senate.
“I definitely don’t think that things are going as we envisioned” at the end of 2017, he says. “Things are fluid and in motion. We’re not in a status quo environment.”