Column: The year in M&A
Achieving scope and scale to compete on an international stage drove last year's busy merger-and-acquisitions cycle. John Vandervelde talks about what it means for 2017.
This year has been another busy year for the small and mid-cap market (i.e. less than $2 billion in market cap) as mergers and acquisitions revitalize the Canadian film and television industry, which is immersed in its greatest transformative period since the mid-1990s, back when tax credits were introduced and a host of producer/distributors bounded into hospitable public markets.
The current cycle of M&A activity began a few years ago and it continues to be driven by the need to achieve scale to better compete in the global entertainment business. Access to capital, through public markets or private sources, is critical for growth and low interest rates are helping to preserve an abundance of equity and alternative investment capital in the market. DHX Media, Entertainment One, Boat Rocker Media, Thunderbird Media and 9 Story Media have all availed themselves of public and private financing in recent years and they have the resources for expansion.
Valuations for Canadian companies and catalogues are buoyant as the worldwide outlook for entertainment, particularly for television, has been invigorated; YouTube/AVOD and the SVOD platforms have captured the public’s fascination for content, the Brexit fears and uncertainty seem to be subsiding, global players such as Disney, Netflix and Amazon continue their merger/expansion machinations and our domestic kids/family darlings – 9 Story, DHX, and also this year, Boat Rocker – are traversing their paths towards domination of the global animation business.
Scale, in our business, arises from the resources to control and exploit intellectual property; content is still king and the ownership of intellectual property is the premiere building block for growth. Acquisition activity in 2016 was all about the creation, ownership and exploitation of IP.
This year saw more catalogue acquisitions, not just for the immediate distribution bulk, but for the future potential of creative/production/merch rights and brands within those catalogues. In July, Lionsgate announced a stake in U.K. unscripted prodco, Primal Media, with its 15,000+ episodes. Boat Rocker bought the 600 hour factual/lifestyle catalogue from Peace Point Rights in August.
In 2016, we also saw the acquisition of infrastructure to augment existing enterprises or to vertically integrate those enterprises. In March, eOne acquired a stake (subsequently topped-up) in unscripted prodco Renegade 83. Also in March, Boat Rocker reported the acquisition of kids content producer Radical Sheep and then further expanded its animation production capabilities in August with the purchase of premium animation house Jam Filled Entertainment (Full disclosure: TEAM was involved in that transaction). For good measure, the company solidified its production capacity, as well as its production slate, when it took over production assets of Arc Entertainment that same month.
Furthermore, Entertainment One topped-up its investment in digital agency/producer Secret Location in August (and eOne also received an acquisition proposal from the UK’s ITV in August, which it subsequently declined). In October, Blue Ant Media opened a new production studio in the U.K., Antenna Pictures. The Wow! Unlimited transaction between Rainmaker Entertainment, Frederator Networks and Ezrin-Hirsh Entertainment (Full disclosure: one of the principals in that transaction is also principal in TEAM), in October, has pooled a public production company and online content delivery expertise with some accomplished entertainment executives.
As this business cycle continues, the most dynamic Canadian film and television companies are building the critical mass to go head to head with the international players. Public and private financing sources will remain responsive to this growth and we may even see an IPO or two. We expect M&A activity to continue into the new year; we will see interest in some compelling Canadian catalogues that remain available, but that pool is dwindling, so the acquisition of non-Canadian IP and production resources will become a larger component of the Canadian M&A business in 2017.
John Vandervelde is managing director of The Entertainment & Media Finance Group Inc. (“TEAM”). TEAM provides financial advisory and M&A transaction services to the film and television industry.