Three steps to more successful Media M&A deals

As Warren Buffet says, “Price is what you pay. Value is what you get.” Among M&A dealmakers, too often the focus is on the price aspect of the deal—CEOs haggling over and agreeing to terms. But what happens after the handshake—how the companies are integrated—is given short shrift. The result? Deals that fail to deliver the expected value.

This is particularly true of deals involving media companies, which can be vastly different from companies in other sectors, and difficult to integrate as a result.

Smart media M&A dealmakers see the handshake as just the beginning of any given deal. Before that fateful moment, they look forward to assess whether and how their companies can be integrated in three important areas: culture, operations, and cash flow and forecasting.

Culture

You’ve heard the saying “culture eats strategy for breakfast.” I’m here to tell you that culture devours M&A deals, too. Doing a media deal and want to avoid egg on your face? You’d better understand the cultural issues at play.

For instance, telecommunications and technology companies are currently buying up media companies for impressive sums, hoping to create value by bringing together content creation and distribution. (See Comcast’s acquisition of NBC Universal, Verizon’s acquisitions of AOL and Yahoo, and AT&T’s acquisition of Time-Warner.) Telcos and tech companies, which are often engineering focused, usually have very different cultures from media companies, which, relatively, tend to employ lots of creative types and have cultures that reflect that fact.

Integrating corporate cultures is an art form—but it’s essential if you want your deal to generate value. Give this factor the attention it requires to get it right.

Operations

Companies involved in mergers and acquisitions typically hope to drive operational efficiencies in areas from supply chain, manufacturing, and marketing to distribution and customer service. But because media company operations are typically so distinct from those in other industries, integrating operations after a media M&A deal can be especially challenging. And because the media business can involve taking sizeable financial risks—content creation and acquisition costs can be enormous, but there’s no guarantee that the marketplace will be interested in your content—answering the question of how your combined company will integrate operations is of the utmost importance to driving deal value.

It’s also important to consider issues related to the legal structures involved in, and the tax implications of, the deal. Often, for example, media companies and other businesses take very different approaches to asset structuring. If you’re not careful, media M&A deals can have suboptimal tax consequences, and generate lots of extra work for both management and boards.

Cash flow and forecasting

Companies in media M&A deals can have significantly different cash-flow profiles. Media companies with subscription-based business models generate predictable cash flows, compared to industries where cash flows and forecasts are lumpier—like tech. As dividend plays, meanwhile, telcos desire steady cash flow—but media M&A targets don’t necessarily map to the telco cash-flow profile. Moreover, there may be significant cash opportunities at the outset of an M&A deal, which could affect the new entity’s taxation. How will you combine the companies in your media merger or acquisition? Have a clear answer if you want the deal to work.

Listen to Mr. Buffet, no slouch at M&A himself. For a successful media M&A deal, look beyond the terms of the deal to how, exactly, your companies are going to integrate. You—and your investors—will be glad you did.

What’s your take on media M&A? Have anything to add? Join the conversation below.

Listen to Mr. Buffet, no slouch at M&A himself. For a successful media M&A deal, look beyond the terms of the deal to how, exactly, your companies are going to integrate. You—and your investors—will be glad you did.

What’s your take on media M&A? Have anything to add? Join the conversation below.

Listen to Mr. Buffet, no slouch at M&A himself. For a successful media M&A deal, look beyond the terms of the deal to how, exactly, your companies are going to integrate. You—and your investors—will be glad you did.

What’s your take on media M&A? Have anything to add? Join the conversation below.

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