Transaction Opportunities Overview ATT Corporate Finance Activity Cable
Transaction – Opportunities Overview (AT&T) Corporate Finance Activity Cable and Satellite Operators: Recent pickup in horizontal mergers among operators seeking to reduce costs and gain leverage with networks to address rising programming costs • (e. g. Charter Communications/Comcast’s bids for Time Warner Cable) Horizontal Integration Networks (Distributors): Greater scale increases negotiating power to mitigate content costs • (e. g. Rumored Discovery bid for Scripps) Studios: Greater scale increases risk diversification and provides more stable revenues • (e. g. Lions Gate acquisition of Summit) Vertical Integration Splits / Spin-offs Digital Growth Content-focused: Rising value of content is driving networks to seek greater access to content through either in-house production or through acquisitions • (e. g. GE & NBC acquisition of Universal, Disney’s acquisitions of studios) Distribution-focused: Vertical integration also ensures a platform for studio’s content • (e. g. Formalized distribution partnerships such as Disney and Dreamworks) Splits/Spin Offs: Recent major splits/spin-offs where core media business separates from areas such as publishing or outdoors • (e. g. News Corp. and 21 st Century Fox, Time Warner and Time Inc. ) Digital: Emergence of digital distribution platforms such as Netflix and Amazon Instant Video threatens networks and cable/satellite operators and increases demand for content • (e. g. $5. 2 bn of digital revenues in 2012, up 50% from 2011) Copyright © 2018 by NIBC Live Industry Templates – Not for Redistribution VALUATION OVERVIEW Media conglomerates: • • • EV/EBITDA: 7. 4 x – 11. 7 x EV/Revenue: 2. 6 x – 2. 7 x P/E: 13. 3 x – 18. 3 x Studios: • EV/EBITDA: 8. 2 x – 24. 5 x • EV/Revenue: 1. 8 x – 3. 6 x • P/E: 18. 1 x – 40. 9 x • Higher multiples compared to conglomerates suggests premium on pure-play nature and//or high growth expectations for content Netflix: • EV/EBITDA: 37. 8 x • EV/Revenue: 4. 2 x • P/E: 74. 9 x • High valuation emphasizes industry trend towards digital distribution and projected rapid growth All multiples are NTM
Transaction – Opportunities Overview (EA) Larger players have acquisitive history and Asian gaming firms are looking at Western market, but few players focus on console games, and Activision has lower propensity to bid given recent share buyback from Vivendi Potential Rival Acquirers of Take-Two Rival Acquirers Prior Acquisitions Guidance / Background Revenue Mix Capacity Valuation Electronic Arts Pop. Cap Games Playfish Playdom • Building leadership position in mobile and online gaming 53% Console 45% Digital 2% Distribution Size: $13. 6 bn Cash: $2. 1 bn Net Debt/EV: (5. 0%) P/E: 24. 2 x EV/EBITDA: 13. 1 x EV/Sales: 3. 3 x Activision Blizzard Bizarre Creations Demon. Ware Red. Octane • No perspective deals in discussion Can diversify product offering through acquisition 52% Console 27% Digital 14% Mobile & Non. Platform Specific 7% Distribution Size: $14. 0 bn Cash: $3. 8 bn Net Debt/EV: 3. 7% P/E: 13. 8 x EV/EBITDA: 11. 9 x EV/Sales: 2. 9 x Tencent • Leverage strength in domestic market to acquire into international markets Compete with rivals moving into gaming space 80% Social 10% Online Ads 7% E-Commerce Size: $154. 0 bn Cash: $6. 5 bn Net Debt/EV: 0. 6% P/E: 39. 5 x EV/EBITDA: 27. 5 x EV/Sales: 12. 0 x Riot Games • • Microsoft Mojang Rare • Recent acquisition demonstrates focus on connecting with gaming space and mobile platforms Conglomerate Size: $389. 0 bn Cash: $89. 2 bn Net Debt/EV: 5. 4% P/E: 17. 6 x EV/EBITDA: 10. 1 x EV/Sales: 3. 7 x Nexon gloops • Expressed interest in acquiring North American IP 79% Online 21% Mobile Size: $4. 1 bn Cash: $1. 0 bn Net Debt/EV: (19. 1%) P/E: 12. 7 x EV/EBITDA: 5. 8 x EV/Sales: 2. 4 x • With strong cash reserves, management is open to M&A have been struggling recently 100% Hardware Size: $14. 6 bn Cash: $7. 6 bn Net Debt/EV: NA P/E: 52. 8 x EV/EBITDA: 22. 0 x EV/Sales: 1. 8 x Nintendo • National Investment Banking Competition & Conference 2013 2
Content Transaction – Opportunities Overview (EA) Transaction Rationale Considerations Examples 1) Acquire content developer Access to proven content and titles Facilitates hit-driven business model Growing importance of international footprint Bidding wars likely Risky given that content is generally Acquire Telltale Games 2) Acquire movie / book Access to up and coming titles franchises Destiny writer left to join Game of Thrones team Segment Expansion 3) Acquire rights for new games Limited transformational change Game of Thrones Acquiring new high-quality content is increasingly Limited transformational change competitive 4) Acquire company in Mobile & social gaming revenue growth up 55% mobile, online and free Yo. Y in 2013 -to-play segment Establish market leadership and preempt competition Difficult to gain competitive advantage 5) Acquire company with Asia accounts for close to 50% of video game market share in Asia revenues Only ~7% of EA's revenues derive from Asian market has different culture and EA to acquire De. NA Gain first player advantage in Asia 6) Consolidate with Economies of scale console-game makers Follow consolidation trend of industry Consolidation unproven in popularity EA to acquire Take Two Access to blockbuster Grand Theft Auto Preempt acquisition by rivals as there are many players within the mobile gaming space Acquire Zynga Acquire King Acquire De. NA focuses on different genres Difficult to find target willing to sell especially in countries like Japan International acquisition brings foreign transactions problems Content might not be a good fit Acquire Take Two Acquire Ubisoft Only a couple of successful franchises Bidding war with Activision Blizzard EA to acquire Ubisoft Limited amount of past successful AAA Access to blockbuster franchise, Assassin’s franchises Creed, and potential titles Crew and Metro Redux 7) Consolidate with mobile-game makers Mobile gaming is maturing with increasing 8) Acquire Spin offs Gaming divisions are fairly contained Some conglomerate are willing to sell consolidation National Investment Banking Competition & Conference 2013 High valuations for uncertain franchises in medium to long-term divisions up for sale likely unsuccessful or with low growth potential 3
Transaction – Opportunities Overview (AT&T) Only few listed channel networks that offer original premium content that could lend itself for exclusive streaming to meaningfully support OTT platform Premium Channels Starz Mkt Cap: $2. 4 bn. EV: $3. 5 bn Revenue: $6, 223 m AMC Networks Mkt Cap: $4. 8 bn, EV: $7. 8 bn Revenue: $2, 581 m MSG Networks Mkt Cap: $1. 2 bn. EV: $2. 5 bn Revenue: $1, 155 mm Discovery Networks Mkt Cap: $15. 8 bn; EV: $23. 3 bn Revenue: $6, 394 m Scripps Mkt Cap: $7. 6 bn; EV: $11. 8 bn Revenue: $3, 018 m Crown Media Holdings Mkt Cap: $1. 7 bn, EV: $1. 9 bn Revenue: $479 m Business Overview Produces original content and distributes third party content through premium channels Holdings company which owns cable television brands and produces some popular original content Sporting and entertainment services incl. sporting coverage, content mgnt, TV broadcasting, script writing Non-fiction entertainment incl. educational TV channels, digital media services Operates lifestyle TV channels, internet businesses (Food Network, DIY Network, Cooking Channel, etc. ) Operates Hallmark Channel and Hallmark Movies & Mysteries, features original films HBO Private (valuated at $20 - 30 bn) Highly successful original content (e. g. Game of Showtime Private Provides premium channels with original content (e. g. National Investment Banking Competition & Conference 2013 Thrones) with loyal subscribers Billions, Penny Dreadful, etc. ) Acquisition Considerations Has been in takeover discussions with multiple parties including AMC, Lionsgate Could be comparable acquisition target Sports franchises more suited for advertising based model Very large, content not suited for exclusive streaming Content not suited for exclusive streaming Family oriented programming Owned by Time Warner, unlikely to sell Owned by CBS Corporation, unlikely to sell 4
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