A tumultuous 2020 for every sector has left many private equity firms with capital they are keen to deploy and relentlessly searching for the next attractive investment. Media is no exception and, despite challenges in some areas of the industry, provides some exciting growth opportunities for investors.
The previously favoured events sector, which saw investment from Providence Equity Partners in CloserStill Media; Blackstone in Clarion; and Charterhouse in Tarsus, amongst others, has been drastically changed. Unable to hold events, these businesses have faced tough cost reduction programmes in order to stabilise cash flow. However, many have also taken the opportunity to invest for the future implementing new technology that will enable the company to expand the product set and more effectively analyse customer data.
Other areas of the media sector have been facing significant challenges for a number of years. The decline of print publishing and advertising models in favour of lean, digital media companies providing consumers with real time content has merely been hastened by the events of 2020 as lockdown has dramatically increased online content appetite and consumption. Such an increase in demand, coupled with the restrictions of trying to produce this content in lockdown, has driven growth in related areas of the media sector and 2021 will see private equity firms making strategic investments in sports media rights and services for content production.
Information services has given some welcome relief to investors. The resilient subscription-based business models that have made such businesses so attractive proved stable and reliable over the course of the last year. As such, investors will continue to explore new opportunities in the b2b content and data provider arena.
Private equity interest in information services is not new. There are many examples of successful exits in the space including Bowmark Capital’s exit from Law Business Research to Levine Leichtman in 2018 and BC Partners’ sale of a majority stake in Acuris to ION Group in 2019. Both mid-cap and large-cap investors continue to see information services as a space worthy of their attention.
The key will be in finding the right opportunity. The start of 2021 is already busy with companies such as Autovista and Kynetec known to be up for sale this year. Ascential’s Glenigan sold at the end of 2020 to Byggfakta Group during a highly confidential and accelerated process. We expect to see other speedy transactions this year as private equity firms race to secure attractive assets. But where will the best opportunities lie?
The heart of information services businesses’ appeal is in the recurring revenue from subscriptions, allowing a strong projection of future revenues and potential for scale and robust profit margin. To capitalise fully on growth potential, major investment in new technology is often needed as well as the transformation of go-to-market models no longer fit for purpose. A customer-oriented approach, in which data analytics are used to optimise the customer journey and improve the precision and breadth of offer, is required to deliver optimum value.
We expect to see a number of carve outs from large, listed businesses such as Euromoney or Informa looking for an injection of cash due to the loss of revenue from events and related underperforming divisions.
Sports media rights
Another area in which we expect to see investments in 2021 is sports media rights. The global value of sports media rights is around $50bn¹ and has been consistently increasing year-on-year. Sports leagues sell the broadcasting rights to media companies, including pay-TV broadcasters and streaming platforms, as a key form of revenue generation alongside the commercial rights for sponsorship and advertising, match day ticket sales and hospitality.
The sports industry has been hit hard by the Covid-19 pandemic. Unable to host sporting events for much of the lockdown period and playing with empty stadiums or venues the remainder of the time, sports leagues and events have lost a significant proportion of expected revenue. Not only has this wiped-out ticket sales and hospitality, but also necessitated the payment of rebates to broadcasters to whom they are unable to meet their commitments. Even before the pandemic, sports leagues and events have been looking at how they can diversify revenue streams and find new ways to engage fans and monetise content, such as launching direct-to-consumer platforms. Investment from private equity could provide both much needed revenue for leagues suffering the effects of the Covid-19 pandemic and the strategic expertise to help drive growth. The e-sports sector also shows some promising potential opportunity in subscription and advertising revenue streams.
Live sports entertainment will return in full force post-pandemic. There is also increased competition from streaming services such as DAZN and Amazon Prime for the acquisition of the media rights, meaning that sports leagues and events can still command healthy numbers. Sports media rights are now very much on the agenda for many large cap private equity firms. At the end of 2020, CVC Capital Partners and Advent International acquired a 10% stake in a new company that will manage the media rights to Italy’s Serie A for €1.7bn. DFL is receiving interest from multiple firms for a minority stake in Bundesliga International, the commercial arm of DFL which manages the sale of its international media rights (valued at €240 million annually by Deloitte²).
Content production services
Advances in technology have created a new growth area within the production lifecycle. Software, hardware, and services for content production such as visualisation solutions are transforming the production process.
There has naturally been a major increase in consumption of content across media channels over the last year. However, advertising revenue in Europe for 2020 was down 9%³ as consumer driven companies such as retailers cut spending to reduce costs. Despite high audience numbers for TV, advertising strategies have shifted away from brand identity-based marketing towards focusing efforts on acquiring customers through digital advertising on social platforms and gaming. The Covid-19 pandemic has also increased costs further up the supply chain with production halted and new processes being required to continue production safely.
With these challenges comes opportunity. For example, implementing visualisation solutions can help enhance planning, make filming more efficient and reduce the number of expensive reshoots, thus reducing costs.
Content production service providers can scale globally and will be an attractive investment for private equity firms. Organic growth will come from new product development and the launch of innovative software platforms. Global expansion can also be achieved through a buy and build strategy, entering or strengthening a company’s position in markets through acquiring smaller providers. IYUNO Media, the post-production services company backed by SoftBank Ventures Asia, Swedish private equity firm Altor and Los Angeles-based investment firm Shamrock Capital, which merged with BTI Studios in 2019, is continuing to pursue a highly acquisitive approach, increasing capabilities in the German dubbing and post-production market through the acquisition of Scalamedia last year. Other private equity firms will be looking for a similar platform to get a piece of the production services pie.
Teams and hiring
Talent is undoubtedly a key driver of growth. Whether backing the existing leader of the business or bringing in a new Chief Executive Officer, it is critical for the private equity firm to add the right capabilities and expertise to any portfolio company. First, the right Chair can help guide the business through the challenges of new ownership. Private equity firms will often, if not always, look to an experienced Chair who has seen through a previous private equity exit themselves. They can provide advice and act as a mentor to a less experienced Chief Executive or take a more hands-off approach whilst ensuring a steady ship through implementing the right governance.
The search for the right talent starts before the completion of the transaction. Through the use of pre-deal advisors, private equity firms can form strong relationships with experts in the sector. These individuals provide additional insights into the market and support the private equity firm’s due diligence process. During the current economic uncertainty and the changes happening within the media sector, leveraging this expertise will enable investors to feel more confident in the potential growth prospects of an asset.
The specific skills required within a leadership team will differ depending on the challenges of the particular business. Chief Executive Officers in private equity backed media companies in 2021 will, however, all need to demonstrate certain behavioural competencies to be successful. Strategic thinking will play an important role in navigating a complex global market and identifying the best opportunities for the business. Relationship building will enable leaders to leverage their network for commercial gain, particularly important in areas such as sports media rights where an understanding of stakeholders at sports clubs and the ability to negotiate effectively with broadcasters will directly impact value. And finally, the ability of leaders to drive the performance of their teams will determine success: setting ambitious objectives and empowering teams to deliver on them.
We may still be in lockdown for months to come, but 2021 promises to be an exciting year in the media sector. The Covid-19 pandemic brought many challenges for media companies in 2020 with b2b and b2c events cancelled and advertising revenues declining further. However, 2020 also proved the stability of information services and accelerated new areas of growth.
Looking to the future, private equity firms are on the hunt for where to deploy capital. They will be likely to find attractive opportunities with excellent growth potential in both sports media rights and content production services.
Talent will remain crucial for any success. Without the right people, private equity firms will fail to achieve strong outcomes. The skills and behaviours of the board and leadership team in a portfolio company can be a great source of competitive advantage.
¹ This is how coronavirus is affecting sports | World Economic Forum (weforum.org)
² German Soccer’s Foreign Media Rights Said to Attract Advent, BC (bloombergquint.com)
³ This is how COVID-19 is affecting the advertising industry | World Economic Forum (weforum.org)