The media industry is going through a wave of consolidation as traditional players try to adjust to changing consumer habits. Demand for traditional media like print newspapers, cable TV, magazines, and landline phones, has decreased as streaming, mobile and digital media becomes more popular. As this trend continues, businesses will continue acquiring to capture consumers, build economies of scale and monetize content in order to stay profitable and grow. Here are three interesting transactions in the telecommunications, media and entertainment sector.

AT&T to Acquire Time Warner

AT&T plans to acquire Time Warner for $85 billion in one of the biggest media acquisitions in history. The telecommunications provider is eager to get its hands on Time Warner’s popular channels, such as HBO and CNN, in order to compete with rival Verizon, which recently acquired AOL and is in the process of acquiring Yahoo!. Time Warner plans to sell Atlanta broadcast stations to Meredith Corp in order avoid an antitrust review.

Sprint Acquires a 33% Stake in Tidal

Sprint acquired a 33% stake in Tidal, an online music streaming service owned by rapper Jay Z. By pairing Sprint’s pipeline of mobile phone customers with Tidal’s music and video content, the companies can be more powerful and reach more consumers.

In some ways this deal is a realization of the infamous Time Warner – AOL deal where they tried to leverage AOL’s infrastructure to distribute Time Warner’s content. While that deal is largely considered a failure, times have changed and Sprint and Tidal have a chance to get the integration right. While Time Warner and AOL tried a “merger of equals,” Sprint has acquired a minority investment in Tidal for $200 million.

Hollywood Reporter – Billboard Media Purchases Music Brands from SpinMedia

The Hollywood Reporter-Billboard Media Group will acquire four brands, Spin, Vibe, Steroegum, and Death and Taxes, from SpinMedia in order to establish the largest music brand by digital traffic, social reach and audience share. The Hollywood Reporter – Billboard Media Group’s strategic rationale is to reach millennials and aggressively enter into the video market.

I was recently interviewed about this deal in The Street:

“One of the challenges in today’s media environment is how do you remain relevant, so by combining these business brands and in particular by focusing on the music space, I think strategically the deal makes sense.”

As technology advances and consumer behavior continues to evolve, media companies will continue acquiring in order to stay relevant and most importantly, profitable.

“The danger with a mergers-and-acquisitions boom is that chief executives could allow themselves to get carried away by the thrill of the hunt, reducing their focus on internal investment projects that might have a better chance of bearing fruit,” says the New York Time’s Dealbook column.

M&A activity has reached record highs and shows no signs of slowing. The $2.2 trillion in announced deals globally this year is an increase of 67% over the same period a year ago. This may be good news, but there are accompanying risks.

More mergers and acquisitions typically are a positive sign for the economy, but as activity increases so does the number of failed acquisitions. Executives can make irrational deals driven by excitement or pressure for acquisitions rather than strategy, because cheap capital is available or because others are executing deals.

This year we’ve already seen the failure of a few large acquisitions: Pfizer – AstraZeneca, Fox – Time Warner, Sprint – T-Mobile. Even completed acquisitions still may fall short of expected synergies.  We’ve seen a large number of tax inversions and consolidations, which are primarily driven by cost savings. This is concerning because once you’ve cut costs to become “leaner” and more efficient you have to employ another strategy to grow revenues. I’ve rarely found cost savings to be a strategy for long-term growth.

To further understand this phenomenon of irrational deal-making we can explore the M&A cycle that can be categorized into four phases.

  • Phase 1 – There are few mergers and acquisitions due to sluggish economic conditions.
  • Phase 2 – M&A activity increases as financing is readily available in an improving economy.
  • Phase 3 – Activity is robust: executives feel more confident about the economy and they execute more deals.
  • Phase 4 – The market is frothy and executives start making “dangerous” deals driven more by excitement and momentum than strategy. Premiums can rise to 100% in this final phase.

The excitement from the M&A boom in Phase 3 drives the onset of riskier deals in Phase 4 that are more likely to fail.

It’s natural to be enthusiastic about a deal, but avoid getting swept up in the excitement and acting on impulse without focusing on strategy. Following a proven, systematic process can help you objectively evaluate your M&A opportunities to make sure they are aligned with your growth strategy. I recommend you develop a strategic acquisition plan before you jump into searching for prospects or executing a deal. Using a process will minimize your risks, help you avoid making a bad acquisition, and increase your chances for a successful acquisition.

Photo Credit: sub_lime79 via Compfight cc

Sprint has dropped its bid to acquire T-Mobile due to regulatory pressure. Large, public transactions must be reported and should be regulated by law, of course, but this is an unfortunate setback for Sprint. After investing resources putting together the deal and lobbying for months, the company must walk away from it because of external factors.

We want our clients to decide whether to go through with a deal rather than reacting to a decision made for them. This is one of the advantages of privately held, not-for-sale transactions.

When pursuing privately held, not-for-sale transactions, you can maximize the effectiveness of your resources – both time and money – because you face less regulatory red tape and you can avoid the auction process. Once you find the right prospect who shares your vision for the future of the company, momentum and excitement will help close the deal.

Photo Credit: Mike Mozart via Flickr cc