Telecom and media M&A deals have sputtered to a 2-year low, but one area could heat up soon
- Telecom and media deal volume shrunk to a two-year low in the first quarter 2019, according to a new research report from PwC.
- The trend will likely continue for rest of the year as companies that closed massive deals in the past few years work to integrate their businesses.
- A potential bright spot in activity may be the OTT streaming space.
Following one of the most transformational years in the telecom and media industries, M&A deals have sputtered to a two-year low suggesting caution for investors, according to a research report from PwC.
Telecom and media deal value was down 82% from a year prior, with $6.7 billion in announced deals versus $37.6 billion in the first quarter of 2018.
The trend will likely continue for rest of the year, Bart Spiegel, a telecom and media deals partner at PwC, told Business Insider.
"The players with big war chests that can spend a lot of money on transformative mega deals, I think that may be on hold for now," Spiegel said.
The largest deal of the first quarter 2019 was Nextstar's sale of 11 stations to Tegna Inc for $740 million, and 8 stations to EW Scripps Co for $505 million for a combined deal value of $1.25 billion.
In 2018, AT&T bought Time Warner for $85 billion and followed it up with a reported $1.6 billion acquisition of digital ad firm AppNexus. Disney bought 21st Century Fox assets for $71 billion. Comcast bought pay-TV provider Sky for $39 billion.
These big acquisitions mean these companies now must successfully integrate their newly acquired businesses and start to produce synergies, which means a decrease in deal activity throughout the industry, Spiegel said. While deals are not a standstill, they are not going to be at a level commensurate with what the market has seen in the past several years, he said.
Still, there are some bright spots in the sector to keep an eye on for increased M&A activity.
Spiegel expects there to be activity in the OTT streaming space as players try and establish their presence in the ecosystem that is increasingly direct to consumer.
Comcast, the biggest cable pay-TV distributor in the US, anticipates streaming competition to become increasingly fierce.
On Comcast's first-quarter earnings call, NBCU CEO Steve Burke said he expects "a lot of new entrants" to OTT in the coming years. "We actually think it's very, very early innings, in some ways reminiscent of cable in the 1970s or 1980s," he said on Thursday's call.
This competition could translate to M&A activity as companies work to build out or buy the technology assets necessary to compete, Spiegel said.
Free ad-supported streaming services could be the immediate beneficiaries of a competitive OTT landscape where traditional companies are looking to acquire, according to industry insiders. These services look increasingly attractive to companies that recognize not all consumers are willing to pay for multiple television services, and traditional MVPDs and cable and broadcast companies face pressure to innovate through OTT services to keep up with changing viewing habits.
There's already been one big acquisition in this space, with Viacom acquiring Pluto TV for $340 million in January.