Divestment appetite among media and entertainment (M&E) companies remains at near-record highs, according to the EY Media & Entertainment Global Corporate Divestment Study. The study reveals that 80% of global sector respondents plan to divest in the next two years – up from 33% in 2017 and down slightly from 87% in 2018 – as they seek funds to invest in digital capabilities and to focus on core assets.
The study indicates that 75% of companies anticipate more large-scale transformational divestments in the next 12 months. With the line between technology, M&E and telecommunications companies increasingly blurring, 68% say convergence is most likely to drive divestment decisions in the next year, while 58% have reinvested proceeds from their last divestment in new products, markets and geographies.
Will Fisher, EY Global Media & Entertainment Transactions Leader, says:
“Technology-driven convergence, the increasing importance of exclusive content and data, shifting consumer behavior and competition from online players are driving M&E companies to continuously evaluate their growth strategies. In this climate, a strong appetite for divestment prevails, with companies looking to pivot more quickly in pursuit of new growth opportunities. The focus should now be around how to operationalize divestments to reach bigger audiences and build scale to compete with growing content production and data costs.”
The study findings are supported by the 19th EY Global Capital Confidence Barometer (CCB), which reveals that more than two-thirds (71%) of M&E companies are now reviewing and reshaping their portfolios at least every six months, as they continue to actively dispose of underinvested assets, businesses that are no longer core to the portfolio, and those best left in the hands of another owner.
And with 78% of Media & Entertainment Global Corporate Divestment Study respondents expecting the number of technology-driven divestments to rise in the next 12 months (up from 75% last year), the drive to fund new technology investments continues to be a key divestment trigger across the sector.
Delays continue to hamper media and entertainment divestment prospects
While divestment intentions are strong across the sector, the study indicates that companies remain slow in initiating the divestment process. Sixty-five percent of respondents say they have previously held onto assets for too long when they should have divested, while 58% state that their last divestment was delayed because they didn’t prepare adequately for associated regulatory requirements.
Fisher says: “As M&E companies continue to review their portfolios more frequently, they will need to ensure that they are also taking steps to prevent delays in divestment decisions, as well as potential value erosion. Preparation is a key differentiator here, and the most successful companies will be those that commit to early planning, while accommodating regulatory requirements, tax risk and private equity diligence where relevant.”
The study further indicates that 90% of M&E companies prioritized value over speed in their last divestment, up from 77% in 2018. Only 50% of M&E sellers describe their last divestment as opportunistic, down from 65% in 2018. The study highlights that, with unplanned divestments being less likely to achieve a sale price and valuation that meets expectations, the imperative for sellers to build a credible value story with supporting data is now more critical than ever.