The FTI Journal continues its look at opportunities for private equity in distressed M&A given the pandemic-affected economy. Market dynamics in media & entertainment make the sector unusually intriguing.
or millions of households, practicing self-distancing during the pandemic has meant gathering around a glowing screen at night to stream movies, TV shows or user-generated videos. It’s no surprise then, that since the start of 2020, streaming video leads all technology, media & telecom (TMT) subsectors in terms of equity performance, with stock growth at 11.5% to date.
With cinemas closed, concerts canceled and sporting events hosting players only, the stay-at-home media & entertainment (M&E) trend will continue in the near term. That particularly benefits direct-to-consumer content providers, like streaming video (and music) services, as well as alternative providers, such as video game producers and online gambling.
FTI examined market cap growth and declines during recent recessions (including COVID-19) in 30 M&E sub sectors. The five "winners" shown above are the greatest beneficiaries of social distancing; the five "losers" are most exposed due to in-person social interaction.
On the other side of the coin, TMT players that rely on in-person social interaction like digital real estate or online travel, or are venue-based (live entertainment) are lagging and stand to lose long term. So too do advertising-exposed subsectors like print media, which, of course, was already in the doldrums pre-pandemic.
Where does that leave the industry in terms of M&A opportunities?
- Some companies may face pressure to liquidate non-core business lines to free up cash, creating buying opportunities through carve-outs.
- Some sectors suddenly have attractive valuations that may permit harvesting, possibly in conjunction with consolidation.
- Several otherwise healthy companies — especially those premised on in-person social interaction — face an acute demand shock that depresses current value, making for timely buying opportunities.
Looking long term, the COVID-19 crisis is accelerating a range of secular trends that will likely shift disruption in M&E on both the B2C and B2B sides. Savvy investors should be ready to seize the moment.
Read the full introduction to this series "Creative Destruction vs. Created Destruction." To learn more about specific distressed M&A opportunities in media & entertainment, visit our Distressed M&A Outlook Series collection.