What’s Fueling a Surge of Content M&A Talks — and Driving Up Valuations

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Amazon’s lavish $8.5 billion bid for MGM has inspired a wave of media outfits to try to cash in — with big dollar signs in their eyes.

Among the properties in play: Reese Witherspoon’s Hello Sunshine content banner is seeking a sale or an investment partner for a deal that would value the company as high as $1 billion. SpringHill Co., led by NBA superstar LeBron James and Maverick Carter, is in early discussions with a range of potential investors, with a valuation of up to $750 million. Suitors for SpringHill, whose latest production is the “Space Jam” sequel for Warner Bros., include streaming companies and Nike, which has a lifetime sponsorship deal with James.

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And indie studio A24, whose art-house hits include “Lady Bird,” “Moonlight” and “Uncut Gems,” recently explored a sale with an asking price of $2.5 billion to $3 billion, as Variety reported. In addition, various buyers recently have expressed renewed interest in Brian Grazer and Ron Howard’s Imagine Entertainment, with a prospective valuation in the range of $800 million-$825 million. Film producer Legendary Entertainment is in M&A talks as well.

Are these signs of an overheated market? The valuations “are crazy,” says Michael Kassan, CEO of consulting firm MediaLink. “But we’re at a time and place where there’s so much money chasing content right now. And that money has to find a home.”

The larger backdrop is that the streaming wars continue to crank up the value of original content. “It does feel like a bit of a frenzy,” says Thomas Hughes, CEO for the Americas at Vuulr, a global online content marketplace. However, seemingly outlandish prices can be justified based on the long-tail value of well-known intellectual property. Hughes, for one, doesn’t think Amazon is overpaying for MGM, calling the studio “a treasure trove.”

The ongoing wave of M&A is being triggered by low interest rates and intensifying competition in streaming, says MoffettNathanson media analyst Michael Nathanson. More than a decade ago, Disney’s Bob Iger was criticized for overpaying for the acquisitions of Marvel in 2009 ($4 billion) and Pixar in 2006 ($7.4 billion). That’s a case that’s impossible to make today, Nathanson points out.

“It’s a perfect time to be selling, especially if you’re in the business of creating premium content,” he says.

For now, M&A driven by the need to feed the streaming beasts will continue, and not only for TV and movie content but also in adjacent areas like video games, music and podcasts, predicts Kevin Westcott, head of Deloitte’s U.S. Technology, Media & Telecommunications practice. The biggest media companies, he says, must expand into other areas if they want to reduce churn.

There’s also heightened interest among private-equity firms in media and entertainment assets, says Bart Spiegel, PwC’s media and entertainment deals leader: “They can read the room and know that buyers are willing to pay good money for valuable content.”

And as Nike’s interest in SpringHill indicates, potential buyers will emerge from all corners. Says Michelle Ross, CEO of content distributor Vision Media: “Every company is a content company now.”

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