The Justice Department makes mergers and acquisitions difficult for players big and small, but it also opens new doors for creative bargaining.
In an age of rising schism in America, our divided politics have united on at least one thing – the focus on the sheer scale of Big Tech as well as its often unbridled and unfiltered algorithm-driven dollar motivations. Those strengths — which studies show both teen depression and social stress and unrest — previously put Meta/Facebook’s Mark Zuckerberg at the top of the DOJ’s “Most Wanted” list.
And now, according to The Rhine Group investment banker Eric Hodge (a guest on my recent M&A panel at TheWrap’s TheGrill event), “almost every deal you see [Meta] Trying to get stuck with the review. It is remarkable how much scrutiny they have been subjected to.” Case in point: Last week, Meta was essentially forced to sell Giphy by UK regulators, indicating that antitrust investigations don’t end at US borders. In fact, US regulators previously approved a $400 million acquisition.
But make no mistake, it’s not only Meta/Facebook and its increasingly limited-and-isolated-in-the-Metaverse leader Mark Zuckerberg who confront the DOJ’s music. A ghost of disbelief inevitably hangs over any deal proposed by Big Tech. And it doesn’t stop there. This ghost is bigger of all players in the media and entertainment ecosystem that claim any real size and scale. Moelis & Co. According to banker Carlos Jiménez (another guest on my panel), the threat of antitrust is “very real”. “When CAA bought ICM, they only went through the ringer in terms of the antitrust review process,” he said. This, in turn, Jiménez said, fuels a fundamental question in all boardrooms today: “Buyers and sellers are wondering, do we want to fight the Justice Department over a petty transaction?”
Andy Howard of private equity firm Shamrock Capital, a major player in M&E M&A, lamented that he “failed twice” when faced with antitrust checks in two of his deals. Howard was referring to the canceled deal to merge FanDuel/DraftKings sports betting firms and his earlier ScreenVision/National Cinemamedia deal. “It’s terrible,” Howard told us at The Grill. “It’s a big disruption to your business… so I think it’s in the mindset of operators and strategists, thinking about how far I press [M&A], Is it really worthwhile?”
The chilling effect of antitrust freezes both buyers and sellers. Howard said, “If you’re doing an acquisition, it’s a huge leap that you have to make because you’ll be under scrutiny for some time. And that timeline is unknown.” In other words, it’s that kind of Hollywood. There’s the spotlight no seller wants. A dead-end deal that deeply disrupts the company’s dynamics and overall operations.
The “chill” of the antitrust affects all sectors of M&E. Microsoft’s pending $70 billion mega-acquisition of Activision now finds itself directly in the DOJ’s cross hairs and can’t survive, reports Emily Wang, a games specialist at investment banking firm Liontree. “Activision is trading at a discounted acquisition price, which shows the market isn’t sure the deal will go through,” he told me at The Grill. Microsoft’s nearly $2 trillion dollar market cap is pretty scary and dangerous stuff, after all. Among other things, “regulators are understanding how much data is too much data Microsoft has,” Wang said. And while Amazon’s $8.5 billion acquisition of Hollywood studio MGM eventually passed the Fed’s antitrust test, industry insiders like Raine Hodge were surprised by the high level of scrutiny the deal received at the time.
Too many of us focus on the Fed’s heightened mistrust of Big Tech players, which has gone unheard of for far too long (and has seen their valuations skyrocket to several trillions, at least in part because of this). ). And it’s quite unbelievable, in fact, that politicians from both blue states and red states have boarded the antitrust train with such gusto—a fervor that many, including Howard of Shamrock, believe the coming. No party will control the Congress after the mid-term. Election. What is less clear, however, is whether the DOJ’s increased vigilance will be successful.
But does an actual outright antitrust “win” even really matter? The Fed (not to mention smaller competitors and frequent consumers) “wins” when tighter scrutiny causes Big Tech to think twice. Its mere uncertainty drives the actual behavioral effect. And the financial markets – and the mega-players in it – hate uncertainty.
This could give clear valuable content for non-Big Tech buyers and an opening for franchise-rich major studio goals such as Paramount, Warner Bros. Discovery and potentially even NBCUniversal to swoon and achieve if Comcast chooses to divest its significantly lower-margin portion. Business. Or perhaps Comcast chooses instead to double down on media and merge with Netflix (both have similar market caps). It will give Netflix the franchise content it so desperately needs and will immediately create a more well-rounded and formidable non-Big Tech player. In any event, the list of potential non-Big Tech M&A dance partners is longer than you might think. Let’s not forget that non-obvious buyer Vivendi – even a largely water-first conglomerate at the time – acquired Universal Studios from the alcohol-laden Seagram in 2001 (and later sold it to the even more unfocused conglomerate, General Electric). granted, after concluding that one part water and one part major Hollywood studios didn’t mix well).
The only true certainty in these increasingly scrutinized times is that Tim Cook, Satya Nadella, Sundar Pichai, Jeff Bezos and “good old” Mark Zuckerberg are not particularly happy about any of these. Neither are investors in companies that would otherwise be ripe for the taking, but have now been left standing in the cold of the big cold of M&A.
But that doesn’t mean Big Tech won’t give it the old college try. After all, Apple, Microsoft, Amazon and Google are flush with hundreds of billions of dollars in cash to test the waters. A particularly ambitious, but completely logical, mega media deal saw Apple buy Disney and its magical kingdom of largely evergreen content franchises (Pixar, Marvel, “Star Wars,” the Avengers and our beloved Disney princesses). Will have to accelerate for Apple TV+. Excessive speed After all, Apple and Disney have the same DNA; Steve Jobs gave birth to Pixar and later served on the board of Disney.
While many of you might think that this is a distrust bridge too far, just think about it. The Fed can still claim a “win” by forcing Apple to sell off Mickey’s valuable ESPN cheese, just as Disney split Fox’s 22 regional sports networks when it acquired Rupert’s World of Entertainment property in 2019. . Disney’s The Avengers is giving the franchise gifts that keep on running – in fact.
For those of you interested in learning more, visit Peter’s firm Creative Media creativemedia.biz and follow him on twitter @pcathi,