Coronavirus Could Spark Surge Of Opportunistic Production Investment Deals: M&A Experts
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EXCLUSIVE: The coronavirus pandemic is likely to present investment opportunities for industry consolidators, as production companies seek a cash boost amid the chaos of the film and TV shutdown, according to M&A experts.
Independent producers have been at the mercy of the virus, with the filming hiatus hitting revenues and reserves. A recent study by UK producer trade body Pact found that indies have lost ￡250M ($310M) as a result of the COVID-19 crisis, with industry observers expecting there to be casualties.
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It’s in this environment that well-financed buyers could spot an opportunity, according to two mergers and acquisitions brokers, who have been involved in some of the biggest production deals over the past decade. Thomas Dey, the chief executive of investment bank ACF, said there could be a wave of deals in which buyers take minority stakes in production companies on terms that make sense for both parties.
He told Deadline: “People have had a shock and they are now in an acceptance phase. I can say we’ve had five or six phone calls from serious buyers, who have said to us: ‘Thomas, we’ve got a war chest that’s ready to go, do you think there are companies out there?’
“It’s unlikely at this point that a company is going to want to sell a controlling stake at the worst trading point, but they might be willing to sell a minority investment, where you get a cash injection for a chunk of equity. Maybe then there’s a discussion about you taking control in a year or two years’ time when the results have improved.”
Dey, who has brokered deals including Leftfield Entertainment’s $360M sale to ITV Studios, added that these arrangements might make sense in an environment where banks have strict lending policies. “It’s about looking about it in a positive light and saying: don’t take advantage of these companies because they’re down on their luck, but they do need a cash injection,” he said.
Tom Manwaring, a partner at Helion Partners, said that it’s “certainly possible” that there could be opportunistic deals over the coming months, but stressed that he has not yet seen anyone scrambling to sell. “You might see private equity invest to shore up companies that are under pressure. It depends on how long the hiatus goes on for. If it goes on for a long time, then that might become a more relevant scenario. There’s certainly no panic selling at the moment by anybody,” he explained.
Manwaring and Dey agreed that COVID-19 will initially result in a quieter period for M&A, but they said that if buyers and sellers were in advanced negotiations before the pandemic, the deals would likely still get over the line. This happened last week when Sky Studios closed an investment in The Lighthouse, which is run by former BBC Studios drama chiefs Hilary Salmon, Radford Neville and Nick Betts. Another deal expected to complete this summer is Banijay Group’s $2.2B takeover of Endemol Shine Group.
Manwaring, who helped True To Nature sell a minority stake to Sky last year, said production companies with good relations with subscription streamers are well-placed to ride out the storm. Those producers who are more reliant on ad-funded broadcasters could be more exposed, he added, given programming budgets are being cut by the likes of ITV.
“Those producers that have good relations with Netflix, Disney+ and the other SVODs, they are going to be extremely well placed. Once we get through the short-term hiatus of production, the best companies will continue to be in high demand — as they were before the crisis,” he said.
Dey added that the streamers themselves may look to start acquiring companies. It follows rumors in the UK television industry that Netflix has cast an eye over a number of drama producers in recent months, although the streamer has denied that it plans to get into the acquisition game. Dey said it might be a necessity in the streaming wars. “Their model to date has been about original content, but now they’re building out their infrastructure organically. In the race to gain size, they will move faster by acquiring,” he said.
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