Banijay’s $2.2 billion takeover of Endemol Shine, an Anglo-Dutch group twice its size, has given birth to a rare beast at a critical time. The France-headquartered combined entity ranks as the largest non-U.S. independent production player, and marks the indie world’s first major M&A deal to be completed in Europe since the start of the coronavirus pandemic.

It was never a straightforward deal to begin with: the process took more than two years to materialize following a year of on-and-off courtship and was finally completed after an eight-month antitrust process. Now the real work begins with a post-takeover integration that will take up to six more months. Banijay chairman Stephane Courbit, a self-made French entrepreneur, and his right-hand man, Marco Bassetti, CEO of the combined group, will have to deliver a complicated balancing act to deleverage Endemol Shine, whose debt was at $1.83 billion (as of February), while keeping the talent on board. Here’s a deep dive into what lies ahead for the combined group:

Transition Time

As far as takeovers go, it could be a fairly smooth transition due to the fact that Banijay chairman Stephane Courbit previously worked at Endemol prior to its merger with Shine, as did CEO Marco Bassetti. Internally, Banijay has also mentioned its 2016 takeover of Zodiak Media as an example of a successful integration.

There, Banijay was able to keep most key talent on board and gave them the resources to grow and expand, notably over at Yellow Bird, the thriving Nordic banner behind “Wallander” and “Millennium” trilogy, and in France with Alexia Laroche-Joubert’s non-scripted production banner Adventure Line Productions (“Survivor,” “Fort Boyard”). But along the way, Banijay did lose Zodiak’s edge in the scripted and animation arena in France. The scale of Zodiak’s takeover was much smaller, however, since Zodiak Media was the same size as Banijay, whereas Endemol Shine is twice its size.

The combined group encompasses 200 entities in 25 territories and a library that eclipses that of either BBC Studios or ITV Studios, with more than 88,000 hours. And while Banijay is rather lean and mean, Endemol Shine has a much larger structure with a head count of more than 4,000 (as of Oct. 2019), many of whom survived the Endemol and Shine merger in 2014. The challenge for Banijay now will be to do some heavy trimming without scaring off the talent.

“Banijay has massively increased its market value and scale with this takeover, but a multi-billion-dollar group like this one is made up of talent that needs to be handled delicately and with great care,” said a senior financing source. “These big groups are often [fated] to have to keep making more acquisitions to get a hold of new talent, but inevitably lose some in that process,” he added.

Overlapping Assets

The antitrust clearance was issued last week without any conditions, meaning that Banijay isn’t required to sell assets. That said, the purchase of Endemol Shine involves extensive duplication of assets, especially in the Nordics and Italy, and to a lesser extent in France. Banijay is planning to save at least €60 million ($67 million) in synergies through staff cuts and optimization of acquisitions. Distribution and back office functions are the most obvious targets for savings, along with executives. Banijay and Endemol Shine have duplicated offices in France, Italy, Germany, Finland and the U.S.

The first major executive shuffles happened just days after the deal’s antitrust clearance, with the exit of Endemol Shine CEO Sophie Turner-Laing, who will step down July 10, and the appointment of Banijay CEO Marco Bassetti as CEO of the combined group. Back in April, Banijay also appointed Cathy Payne, former CEO of Endemol Shine International, as CEO of Banijay Rights. Despite the overlapping in some areas, both groups are complementary, geographically-speaking: Banijay is particularly strong in France, from where it got 22% of its turnover in 2018, while Endemol Shine is well-positioned in the U.K., U.S. and Latin America.

Scripted v. Non-Scripted Might

Banijay will look to increase its footprint in the scripted landscape thanks to Endemol Shine, whose credits include “Black Mirror” and “Peaky Blinders” and a portfolio of well-established production labels, such as Kudos, Filmlance (“Caliphate”), Rubicon (“Beforeigners”) and Diagonal (“Cathedral of the Sea”). But the combined group will remain primarily focused on non-scripted, according to a senior executive at Banijay.
“Right now, we are a group that’s 80% focused on non-scripted, and we’ll increase our input in fiction but we will remain mainly involved in non-scripted. That’s our DNA, and a business model that we know,” said the executive. “The profitability cycle in fiction is much longer than in non-scripted and it also requires much more cash.”

The source added that it’s “not a coincidence that the world champion of independent production has non-scripted as its core business.” Indeed, the combined Banijay now boasts some of the biggest non-scripted hits, notably “Survivor,” “Big Brother,” “The Kardashians,” “MasterChef.” Streaming services such as Netflix and Amazon have also been eyeing global non-scripted formats following early success. Netflix, for instance, scored with “Tiger King” and “The Last Dance” during the pandemic. Selling to local and global streamers could be a lucrative avenue for Banijay if they’re able to retain some international rights on the formats. A recent Ampere Analysis study showed that the “largest producers are increasingly serving internal needs and holding back content for their own platforms,” so for an indie player like Banijay, there should be more market opportunities to sell to platforms and on the open market to broadcasters.

Financial Impact of COVID-19

Last year, Banijay generated €2.7 billion ($3 billion) of combined revenues from its 200 labels around the world. In a June 11 report, S&P Global Ratings said that due to the pandemic, the “combined group’s capital structure will be highly leveraged, with about €2.4 billion ($2.7 billion) of debt. Combined with expected deterioration of operating performance, its credit metrics will be weaker than we expected” in 2020.
Banijay’s stand-alone revenue could fall 10-15% in 2020, while Endemol Shine’s stand-alone revenue could decline by more than 15% in 2020, said S&P Global Ratings.

The institution explained that Endemol Shine is more affected by the consequences of COVID-19 because the company’s scripted shows, which represent about 32% of its 2019 revenues (compared to 13% for Banijay), are more vulnerable during the crisis. But the future could be brighter: “In 2021, we anticipate sound recovery in operations from fully operational production businesses and strong demand for fresh TV content (…), with positive free-operating cash flows of about €80 million ($90 million) on average in 2020-2021, and above €140 million ($158 million) in 2022.”

A senior financing source was also optimistic about the prospects. “We think that the business model for non-scripted has a life cycle of about 8-10 years, and the pandemic has not altered that model. We anticipate a marginal, short-term impact on this market. They probably lost no more [than] two months of activity,” said the financing source.

The combined Banijay group is held by LDH (67.1%), comprising the Financière LOV, De Agostini and Fimalac, and Vivendi (32.9%).