Evaluating the drivers of broadcast tech vendor M&A plans

Video and audio technologies have become strategic to many companies outside of the traditional broadcast business, so bankers and PE firms are looking to find companies that might add value to a larger enterprise or a portfolio of companies.
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In the aftermath of what many vendors reported was a very successful NAB show, there appears to be an enhanced feeling of optimism in the broadcast industry, something that has been lacking for the past several years.

The global economy is seemingly healthier, the financial performance of both broadcasters and technology vendors has improved, and digital media is a hot topic across many industries as companies roll out plans to bring video and audio content to a growing number of platforms and devices.

Against this backdrop, one noticeable trend at the 2011 NAB Show was increased speculation about broadcast vendor M&A and consolidation, fueled in part by investment bankers and private equity (PE) firms that were significantly more visible this year than in any NAB show in recent memory.
It is perhaps not surprising that there is an increased interest in industry M&A. Video and audio technologies have become strategic to many companies outside of the traditional broadcast business, so bankers and PE firms are looking to find companies that might add value to a larger enterprise or a portfolio of companies.

These factors have led to a flurry of recent broadcast industry M&A deals over the past year — and the pace of activity in this area appears to be accelerating. There have already been a large number of deals in 2011, including the Carlyle Group’s acquisition of The Foundry for a reported $120 million; Cisco’s purchase of Inlet Technologies for $95 million; Technicolor’s disposal of Grass Valley’s broadcast, transmission and head-end businesses in three separate transactions; DG Fastchannel’s acquisition of MIJO for $39.5 million; and the ongoing buying spree of broadcast M&A champ Kit Digital, which has acquired more than a dozen companies, culminating in the $79.4 million purchase of Ioko that was announced during the 2011 NAB Show.

In addition to attracting the attention of investment bankers and PE firms, recent broadcast industry M&A activity (not to mention the healthy valuations achieved by some of the companies mentioned above), has not gone unnoticed by broadcast technology vendors. After weathering a punishing economic climate over the past two years, vendors of all sizes are now taking the time to consider their “strategic options.” Some are eager to sell their companies, while others see an opportunity to acquire other companies and consolidate their leadership position in the market.

Indeed, as shown in Figure 1, our most recent research of senior executives at broadcast technology vendors reveals that while about a third of companies intend to retain their private status, many others expect to be involved in some sort of strategic transaction within the next two to three years.

To read the full article, including a look at the motivations of both buyers and sellers, please follow this link.