The Business
THE HOLLYWOOD REPORTER 38 SEPTEMBER 4, 2019
Mogulsadds that the weaker pound “likely
helped move things along some-
what.” (Entertainment One is listed
on the London Stock Exchange.)
The 3.3 billion pounds Hasbro
agreed to pay Aug. 22, the day
the deal was unveiled, was worth
$4 billion. A year earlier, the same
number of pounds would have cost
Hasbro $4.26 billion. Or looking
at it another way, a $4 billion offer
back then would have amounted
only to 3 billion pounds.
Enders Analysis analyst Alice
Enders argues currency trends
won’t matter much in case of
potential future deals given strate-
gic goals are usually in focus when
it comes to acquisitions. “Capital is
plentiful and very cheap, content
is king, scale in catalog is always
helpful for distribution deals,” she
says. Enders adds of Hasbro’s eOne
deal, “Plenty of reasons to buy a
property like that when it comes up
for sale.” — GEORG SZALAIsmall, they acknowledge, has the advantage
of being nimble, offering a personal touch
and having the freedom to act quickly without
a governing board to slow things down; but
almost all the experts interviewed for this
article lean heavily in favor of bulking up.
Owens singles out several reasons for his
companies’ decision to combine forces, in
addition to the obvious cost savings in human
resources, accounting, field offices, etc.
Among the others are the ability to combine
complementary divisions, providing a one-
stop shop for clients, and the opportunity to
strengthen global offices, especially when
day-and-date openings around the world
make it imperative to have multiple people
in multiple places. “You need boots on the
ground,” he says.
Macro-economic factors also are at play
in the current spate of midlevel mergers —
among them the lower corporate tax rates
ushered in with the December 2017 passage of
the Tax Cut and Jobs Act (rates that encourage
M&A activity, says Sean Snaith, director of the
University of Central Florida’s Institute for
Economic Forecasting) and a flood of private
equity cash that’s entered the market.
“People are looking for alternative invest-
ments at a time when interest rates are very
low,” notes a leading investment banker.
In the past, she says, private equity may have
preferred larger investments; now it is
targeting offerings of $100 million or less,
along with the harder-to-find billion-dollar
deals. “There’s so much money out there
that they’ll come down-market and write
smaller checks as long as the companies have
repeatability and some sense of what the
future is like.”
For executives hoping to tap into this
money, either as a way to bolster their busi-
nesses or gain a whopping paycheck, there’s
all the more need to seek a merger, given that
the bigger they are, the more appealing they
tend to be to investors. Mergers and acquisi-
tions throughout America have been heading
upward since 1985, when their total value was
a mere $305 billion, and peaked in 2015 when
their value reached $2.2 trillion, according
to the Institute of Mergers, Acquisitions and
Alliances. There have been three times as
many mergers and acquisitions in the first
eight months of this year alone (7,112) as there
were in 1985 (2,309).
Media and communications consultant
Tom Wolzien believes this trend will continue
in the entertainment arena as well as in other
industries because “in theory, synergies are
a necessity in a maturing business. You don’t
have much choice if you’re going to play. You’ve
got to have scale until you’re down to the opti-
mal number, which legally is two or three.”
With data playing an ever greater role in the
entertainment business, there will be further
pressure for companies to combine in order to
make the most of their underlying informa-
tion, argues McKinsey & Co. partner Jonathan
Dunn. That’s especially true at a time when
there’s billions in “newfound money from
entrants like [shortform video startup] Quibi,
which creates an environment where the rest
of the capital is under pressure.” Feeling under
pressure themselves, many midlevel com-
panies now believe they need to emulate the
megacorporations’ strategy, betting on size
to give them leverage, both to compete with
rivals and have extra negotiating power.
That’s especially true of those in the talent
agency and public relations fields, who are
seeing the power pendulum swing away from
their side of the business as studios, networks
and streamers increasingly call the shots.
For the past few decades, says Paradigm
chairman Sam Gores, the talent held the
power. But that is shifting as we watch the
consolidation happening with big media
companies, especially as they intersect with
technology and challenge the traditional eco-
nomic models. “This tendency to go bigger isa response to a tectonic shift in the industry,”
he notes. “It’s like a game of tug-of-war. Some
companies believe scaling up is the answer.”
How much more scaling up can still take
place is, of course, the great unknown. Ari
Emanuel’s fall plans for an Endeavor IPO —
with assets ranging from talent agencies to an
in-house production company as well as the
Miss America Pageant and Ultimate Fighting
Championship — might be the greatest test
for the bigger-is-better mantra.
But going bigger is not without danger
to midsized companies that run the risk of
having fleet-footed smaller rivals nip at their
heels. Already, in the PR world, even as compa-
nies such as PMK and Rogers & Cowan have
consolidated, boutiques such as The Lede Co.,
Relevant and Shelter PR have shown they can
hold their own, delivering the “bespoke” ser-
vice Owens talks about. Does this mean small
may still be beautiful, after all?
No, says Wolzien. “Being small is tough.
Small is not having leverage. Small is not
being able to sit at the same size table as
the big guys. Small is not being able to play
the bumper cars. True, if you’re small, you
have the freedom to try new things. You can
innovate — but innovation doesn’t necessar-
ily mean success.”Amid a falling pound, Hasbro’s $4 billion Entertainment One buy may hasten more deals
Is It Time to Go Bargain Hunting in Britain?
W
hat role did the weakened
pound play in Hasbro’s
acquiring Entertainment One for
$4 billion? And will other U.S. com-
panies follow suit as evolving Brexit
plans roil the U.K. currency, which
has lost ground on the dollar the
past year? Several Wall Street ana-
lysts are saying to expect more U.K.
bargain hunts in the near future.
Hal Vogel, former Vogel Capital
Management CEO, suggests that
the longer-term weakening of thepound had a “major role,” telling
THR, “There will be more such
deals.” However, others down-
play the significance of currency
fluctuations. “The weaker pound
definitely [was] a factor and
certainly helped with the price,”
Gabelli analyst John Tinker says.
“However, the primary driver was
Hasbro’s desire to leverage [its]
own IP and further leverage eOne
content on the licensing side.” FBN
Securities analyst Robert RouthU.K. shopping spree
BUYERDiscovery,
Liberty Global
Comcast
HasbroViacom
All3Media
Sky
Entertainment
OneChannel 5TA R G E T2014
2018
2019*2014YEAR CLOSED PRICE TAG
$725M
$930M
$38.8B
$4BEntertainment giants are snapping up British companiesSource: THR research. *Closes in fourth quarter