Communications & Media – North America M&A Outlook

Overview

We have seen Comms and Media (C&M) M&A have a tumultuous few years before, during and after COVID-19. After rebounding from a pandemic-driven low in 2020 to a decade high in 2021 with 43 deals equal to or greater than $1B in North America Comms & Media deal value in 2022[1] contracted significantly as macro uncertainty and higher regulatory barriers led to a smaller number of mega deals. However, across all sub-sectors, except Media, deal volume & value is significantly down from its peak in 2012-2018[2]. We will not only do a post-mortem from what may have led to this, but where we expect the market to go over the next 3-5 years for M&A.

Sub-Sector Deep Dives

Wireline, Cable & Infrastructure

We foresee 5G capacity demands pushing rising fiber asset investment for the industry and private investors. Private investors are driving the expansions to premium value capture markets, such as greenfield fiber deployments to underserved fiber markets and overbuilds in incumbent or competitive markets. Government funding at every level is encouraging industry consolidation and the formation of alternative fiber networks in market that will contribute to increased M&A activity, including in Cable where deal volume has slowed significantly decreasing from an average overall value of $40.3B from 2012-2018 to $11.1B from 2019 to 2022[3]. Outlook: We see consolidation in fiber and alternate networks growth continuing amid plentiful private capital and government funding. We also see the possibility of deal theses focused on improved Home Broadband Networks, and away from 5G/Mobility – causing more of a focus in this sector.

Wireless

The overall value of wireless deals has significantly declined since 2018. The average overall value from 2012-2018 was $17.3B and decreased to $6.8B from 2019 to 2022[4] in North America. While number of deals has not significantly changed, the overall value of the deal has been decreasing for several years, a trend that is expected to continue as interest rates continue to rise and the prospect of an uncertain economy remains. Even though deal value has shrunk, the push for consolidation in fiber and alternate networks has not been dampened with deal volume remaining in-line with previous years. Outlook: We believe deal value will continue to remain low as companies combat a challenging financing environment and an increasingly active FTC that seeks to break-up anticompetitive activity.

?Media & Entertainment

Mega-deal outcomes have remained uncertain, with many Media & Entertainment companies still seeking to realize full value from large transactions. In several of the most prominent recent deals, value realization from levers such as content consolidation and streaming growth have yet to meet expectations. Failed mega deals have often resulted in spin-offs over the past few years as companies seek to rebalance their portfolio. Outlook: Because of growing content intensity as well as declining linear trends, we believe companies will focus more on consolidation deals in the future.

Future Transaction Expectations

To succeed in this dynamic landscape, where capital (private and government) is plentiful but competitive intensity is increasing as hyperscalers encroach and customer expectations evolve[5], We believe Comms & Media companies will need to offload underperforming assets, scale strategically, and pursue a M&A-powered reinvention agenda.

We see four key M&A plays across the industry in the future:

-?????????Spin-off of Under-performing Assets: Companies will look to rebalance their portfolios by selling off non-core and under-performing assets to reinvest in the business

-?????????Consolidations (Monolith to Agile): Companies will seek scale through consolidation of smaller assets into a unified business (e.g., consolidation of small wireless carriers)

-?????????Vertical Acquisition: Companies will look to diversify into non-core assets through small tuck-ins & partnerships that can enable or multiply the capabilities of the larger network

-?????????Platform Plays: Companies will seek transformative growth through the acquisition of capabilities that can be used across platforms

We see numerous examples of where these could play out across sub-sectors:

Managing These New Deal Archetypes

As transactions shift from mega deals to smaller tuck-ins and partnerships, acquirers will need to manage two distinct growth engines:

·??????Engine #1 is the core business – where spinoffs and consolidations will drive efficiencies and focus.

·??????Engine #2 is new platform plays – where the right vertical acquisitions can dramatically accelerate build and go-to-market timelines. These plays require a dedicated team with different skillsets and perhaps a different governance structure then is common in today’s C&M companies. Many times, these teams operate much more closely to Venture team than that of a standard business line in a model that allows the team to drive innovation, agility, and speed to market with new offerings.

In our view, the companies that develop these two-engine approaches most robustly will find the most success over the coming 3-5 years. We look forward to continuing to observe how many of these companies position themselves in the coming years, it truly is an exciting time to be in the industry.

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About the Authors

Eric Weiss (Managing Director – M&A) and Jack Donahue (Managing Director – Communications & Media Strategy) frequently collaborate in thought capital around Communications & Media. Please note, postings reflect our own views and do not necessarily represent the views of our employer, Accenture.

Special thanks to Jake Jackson, Camille Wyand and Carissa Haak for their contributions and support for this piece.

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[1] Capital IQ Data

[2] Capital IQ Data

[3] Capital IQ Data

[4] Capital IQ Data

[5] Accenture Research: https://www.accenture.com/us-en/insightsnew/communications-media/comms-industry-vision