Indian Media and Entertainment (M&E) sector has been a strong ground for mergers and acquisitions (M&A) activities. Despite the moderating growth in the Western countries, a burgeoning middle class population, rising per capita income and the merger control provisions being notified by the Competition Commission of India (CCI), 2011 was no different and the deal activity in this sector stayed strong.
More than 1,000 deals were stitched together as M&A and private equity funding accounted for over $50 billion, according to the latest released FICCI-KPMG report . Of these deals 42 transactions were valued at $940 million compared to 27 transactions valued at $693 million in 2010 and 27 transactions valued at $722 million in 2009. However, the deal activity did not touch the peaks of 2008, which saw 38 deals valued at $1.5 billion. PE funds closed 16 deals valued at $319 million.
Within the M&E sector, television was the largest contributor accounting for $320 million of the total deal value. This is also because TV is the largest value creator in the Indian M&E space and has significant interests from both local as well as global media conglomerates.
"Consolidation will be a major theme going forward as media and entertainment companies will seek to grow inorganically by expanding into newer geographies and by adding to their existing portfolio. Consequently, robust deal activity is expected across all platforms and segments in 2012," the report says.
The large volume of funding received by this segment over the last five years has resulted in the continuing wave of consolidation. Marquee transactions in 2011 included the Walt Disney Company's acquisition of an additional 41 per cent stake at a value estimated to be over $300 million in UTV Software, thereby taking its total shareholding in UTV to approximately 90 per cent, Providence Equity Partners' PE investment in UFO Moviez India ($58 million), and HSBC's PE investment in Avitel Post Studioz ($60 million).
TV18's acquisition of the Eenadu Group in early 2012 for a consideration of $395 million was the standout transaction of the year indicating the need for a complete channel bouquet focusing on profitable growth.
The need for profitable growth and to more effectively build the business around its niche segments resulted in the Walt Disney Company making a delisting offer for UTV Software Communications.
However, the regional ad market boosted by increasing reach and consumption in tier II and tier III towns is reasonably under-capitalised. According to the report, regional channels with a disproportionate share between viewers and advertisement dollars are likely to witness investment interest from financial investors and large broadcasters.