Media deals drive lift in M&A prices

Comcast's (NASDAQ: CMCSA) proposed $45 billion acquisition of Time Warner Cable (NYSE: TWC) is not necessarily expected to punch up the volume of dealmaking this year, but it is expected to boost prices, according to a new study by PricewaterhouseCoopers.

The volume of dealmaking over the last year actually dropped a bit, according to PwC. However, the average size of those deals grew by 80 percent, with the 209 deals announced in the first three months of this year valued at $74 billion compared to $41 billion to start last year.

PwC attributed this to four megadeals including Comcast-TWC, Facebook's (NASDAQ: FB) $19 million acquisition of WhatsApp, Lenovo's purchase of Motorola Mobility, and Media General's purchase of LIN Media. Other mega-deals are expected including AT&T's (NYSE: T) possible acquisition of DirecTV (NASDAQ: DTV), which could reach $50 billion. Dish Network (NASDAQ: DISH) is said to be courting suitors and there are several wireless pairings that could come to fruition this year as well, experts said.

So what's driving this renewed frenzy toward big deals? Goldman Sachs attributes it to CEO confidence. Bankers are having more dialogue with CEO about dealmaking than any time before 2007, when the wheels on the M&A bus started to slow down pre-recession, Gregg Lemkau, Goldman Sachs head of global M&A told Reuters.

The Conference Board and PwC's measure of CEO confidence hit 63 in the first quarter, up from 60 in quarter. At the same time, a TD Bank survey of chief financial officers released on May 8 showed that nearly 60 percent of them are optimistic about U.S. economic growth this year, up from 46 percent in 2013.

"While the Comcast/TWC deal was the trigger, the backdrop of a slow macro economy, new competitors, shifts in technology and consumer habits all come together and force the need for more scale," Highmark Capital Management fund manager Todd Lowenstein told Bloomberg.

Competitors understand that scale matters, and the Comcast-TWC merger is a perfect example of that. The evolution of delivering video via the Internet is forcing all media businesses to reevaluate their business models or seek mergers, Walt Piecyk, an analyst at BTIG LLC, told Bloomberg.

Competitors such as DirecTV and Dish Network Corp. recognize that a combined Comcast-Time Warner Cable will have the ability to move aggressively into delivering video through the Internet, which may soon supplant cable and satellite technologies, Piecyk said.

That evolution is forcing incumbent businesses to evaluate their models, or seek mergers, Piecyk said.

For more:
- The Wrap has this story
- Reuters has this story
- CNN Money has this story
- Bloomberg has this story

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