Mergers & acquisitions activity cooled down in the third quarter after a red-hot start of the year, but deals involving U.S. companies purchasing foreign businesses rose, helping to somewhat stabilize the sector, according to a recent report by PricewaterhouseCoopers.
Entertainment, media and communications deal volume dipped 10% in the third quarter, with 204 announced deals compared to 224 deals in Q3 2013 and 226 deals in Q2 2014. Deal value reached $18.5 billion, about one-third the $74 billion in deal value in the prior quarter. Cross-border deals increased significantly in the period – according to PwC’s US Entertainment, Media & Communications (EMC) Deal Insights, acquisitions by U.S. companies of foreign businesses were up 37% and inbound deals increased 49%.
According to PwC, the Q3 2014 period was the most active quarter to date in 2014, with 67 outbound deals compared to 52 and 59 in Q1’14 and Q2’14, respectively. About half of outbound deals in year-to-date Sptember 2014 were focused in four territories: UK, Australia, Canada and China. European territories outside of the UK accounted for another 30% of outbound deal activity in the period.
Megadeals – defined as deals greater than $1billion in value – kept on pace with five announced transactions in Q3, consistent with each of the past quarters this year. However, Q3 2014 megadeals were valued at $13 billion, while Q1 saw megadeals worth $70 billion and Q2 reached $68 billion. The casinos and gaming sector accounted for two of the five Q3 megadeals, or about 40% of the quarter’s total megadeal value.
By segment, Internet-related and information services deals rose to $3.2 billion in the period, driven by Gannett’s acquisition of the remaining ownership in Cars.com for $1.8 billion, Rakuten’s (Japan) acquisition of Ebates for approximately $1 billion and Telstra’s (Australia) investment in Ooyala Inc for $300 million. Advertising and marketing transactions fell 33% in the quarter, driven by a retreat in foreign and private equity (PE) investment. In Q2 2014, acquisitions by foreign and PE investors represented almost 40% of deal activity in the sector. However, in Q3 2014, similar activity declined to only seven deals, representing less than 20% of advertising and marketing deals.
In the communications sector, deals remained relatively stable, with volumes of about from Q2 to Q3 of this year, and continued to be dominated by telecom equipment, telecom services and wireless deals. Furthermore, those three categories have accounted for 65 of the 80 Communications deals this year.
Deal value in the Communications segment was lower in Q3’14, absent the $7.3 billion acquisition of TW Telecom by Level 3 Communications which announced in Q2’14. Total deal value of $1.8B in Q3 was almost entirely attributable to the announced ‘bailout’ of LightSquared for $1.8B. While the private equity consortium reorganization plan was subsequently abandoned, a recent Chapter 11 plan would see Dish obtain 60% equity, alongside JP Morgan Chase who would obtain a 31.9% stake in a reorganized LightSquared, according to PwC.
PwC expects the Q4 2014 EMC deal pipeline to remain healthy in comparison to the game changing first half. Consistent with prior years, it’s likely additional announced deal volumes may occur, as dealmakers look to announce and close transactions before year-end.