#018: Bigger, Leaner, Focused — Consolidation in 2024

Hey everyone! Happy 2024 - hope the start of the new year has been treating you well so far. I'm back this week with the latest edition of The Bttr [Weekly] after being away last week (but that's why this is a weekly, ain't it?).

I know many of us make bold New Year's resolutions that usually fall apart by January 15th. My personal resolutions this year? I'll reveal those next week, but let's just say procrastinating is NOT one of them. And I'd have a better shot giving up sugar.

For today's newsletter, we look into consolidation as a theme across private equity, tech, and media and entertainment. (Now, consolidation doesn't just apply to individual organizations or industries - it can also be observed with (entire) economies. A prime example is China, where state-driven consolidation drives key industries from technology to infrastructure.) So without further ado, let's dive in...

Consolidation in Private Equity

The private equity industry is entering a new phase of consolidation after a long boom period. Fundraising by private equity groups hit a 5-year low in 2022 as economic uncertainty led institutional investors to become more selective. This slowdown has put pressure on some private equity firms.

This cooldown has created pressure on some private equity firms. As a result, we can expect increased mergers and acquisitions within the industry going forward. For instance, CVC Capital Partners recently acquired infrastructure-focused asset manager DIF Capital Partners, allowing CVC to expand into infrastructure investing to complement its traditional private equity focus. Other major firms like Carlyle and Cinven struggled to meet fundraising targets last year. Prolonged timelines and decreased goals exemplify the mounting challenges for private equity managers after a long boom.

The bottom line is that the wild private equity joyride of the last decade is coming to a close. The industry is maturing and consolidation is the natural next step and a pathway for managers to gain scale, cut costs, and diversify their capabilities. The outsized returns of recent years seems to be ending, leading managers to join forces amid increased competition for investor dollars.

Consolidation in Tech: Doubling down on AI

Artificial intelligence is set to transform the technology sector in the coming years. Given the immense economic potential of AI, estimated in the trillions, it is understandable that major technology companies are focusing intently on building robust AI capabilities.

Smaller firms working on innovative AI applications are likely acquisition targets for these tech titans. While this could limit competition, it also allows the major players to dedicate more resources to further advancing and commercializing AI technology. Plus, some big tech companies (recently, Google) are also laying off employees in non-core areas. The goal seems to be greater efficiency and concentrating resources into AI development.

Lights, Camera, Mergers: Consolidation in Media & Entertainment

The media and entertainment space is seeing a surge of M&A activity, with major mergers and acquisitions reshaping the competitive landscape both globally and in India. Globally, this deal frenzy is being driven by the rise of streaming and the need for scale. Media giants are seemingly working to combine content libraries, subscriber bases, and streaming capabilities, with skepticism towards non-core assets, including network television.

Closer to home, India's M&E scene is also witnessing dramatic changes. The Sony-Zee merger, which might complete sometime in 2024, will form a giant with over 70 channels and two major film studios. Similarly, Disney and Reliance's Viacom18 might go for a mega-merger deal controlling a large swath of India's media market. This has raised some concerns about reduced competition.

What's driving this surge in dealmaking? Streaming has fueled a battle for content libraries and subscriber scale. Combining forces promises cost synergies from merged operations. And legacy media companies are trying to reinvent themselves as emerging technologies shift consumer habits. It also brings opportunities like more investment in premium content and innovative formats. But concentration of power also risks limiting consumer choice, diversity of voices, and content variety.

P.S. Apologies for using "consolidation" so many times in this write-up. I swear that word is not the only one in my vocabulary, though it may seem consolidated into my lexicon based on this article! Unfortunately, I've got some prior commitments this week, so the next edition will be delayed by a week. See you on Jan 17!