FICCI-KPMG-Report-13-FRAMES

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182 The power of a billion: Realizing the Indian dream Trend of investments in M&E (Volume) Source: Mergermarket, Bloomberg, Venture Intelligence accessed on 24th January, 2013, KPMG in India Analysis Going forward, the key themes driving transactions in the M&E industry will be consolidation within the industry, particularly national players entering regional markets, relaxed FDI norms and capital raisings through private equity or IPOs, for expansion plans. News Corp chose to exit its non-core businesses in India by selling its investment in Star News (stake acquired by the ABP Group) and Hathway Cable & Datacom Limited (stake acquired by Providence Equity Partners). Additionally, as part of their overall strategy, News Corp acquired ESPN’s 50 percent stake in their Asian joint venture ESPN Star Sports 8 . This could be an indicator that similar to international markets; India is heading towards an oligopoly in sports broadcasting. The TV Distribution segment has historically been plagued by a number of inefficiencies which are impediments to value creation. These, hopefully, will iron themselves out as the TV value chain realigns because of digitization and FDI. There have, this past year, been notable transactions in this space which include the acquisition of a 1.14 percent stake in DEN Networks by Reliance Strategic Investments Limited 7 , the investment arm of Reliance Industries Limited, and the acquisition of a 90 percent stake in Digicable Network by the Sahara Group 7 . The distribution landscape in India is dominated by large conglomerates such as Tata, Zee, Reliance, Sun, Videocon, ADAG and the Hinduja Group which have the ability to invest long term, as compared to the unorganized local cable operators. Given regulatory shifts, the power equation in the TV distribution value chain will shift towards the broadcasters and MSOs. 5 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Television Television, the largest segment of the Indian M&E industry, constituted a significant portion of the overall deal value, with high levels of interest from strategic and private equity players 5 . Consolidation has been a key theme for transactions in the sector, with national players looking to scale up presence in regional markets, and regional players looking to capture their local markets. Increasing digital addressability and relaxation of FDI norms in the sector will continue to drive deals going forward in this industry, which is expected to grow at a CAGR of 18 percent driven by growth both in subscription and advertising revenues. 5 Broadcasters derive approximately 65 percent of their revenues from advertising. Going forward, digital addressability will help boost subscription revenues and reduce dependence on advertising. Broadcasters with strong channel bouquets and those which can aggregate niche audiences will continue to see advertiser and investor interest in the near term and also benefit from the imminent digitization of the distribution landscape. The television broadcasting space witnessed significant deal activity, the most notable being Aditya Birla Group’s acquisition of a 27.5 percent stake in Living Media India Limited, a majority shareholder of TV Today Network Limited. 6 Major broadcasters, in their quest to become true national networks, are shifting their focus towards regional growth by launching / acquiring new channels and developing localized content in order to develop broader portfolios. Notable acquisitions in the regional space include Eenadu TV and Vissa Television Network, both Telugu, being acquired by Network 18 Media and Investments and Raj Television respectively 7 . 05. KPMG in India Analysis 06. Aditya Birla Group acquires stake in Living Media India, Business Standard, May 19th, 2012 07. Mergermarket, Bloomberg accessed on 24th January, 2013 08. News Corp completes acquisition of ESPN Star Sports, Business Standard, November 8th, 2012 DTH, too, has seen significant buildup of competition over the years, requiring long term investments. Consequently, we expect certain DTH players to raise private equity, consolidate or raise funds from the capital markets in order to build their business. Similarly, in the cable business, we expect significant consolidation coupled with fund raising activity to carry out large scale expansion plans to meet digitization timelines and to keep up with competition. Print India is still one of the few growing print markets in the world and is expected to sustain its growth rate and create value for the next decade, supported by strong underlying fundamentals such as growing literacy rate, emergence of local centric businesses, low PC penetration, absence of pan Indian players (except BCCL) and a huge vernacular market. Transactions in the print space have been largely driven by existing players looking to expand regional/language dominance as also by strategic deals where corporates from outside the industry and private equity have taken stakes in companies. However, deal activity in this space has been tempered due to valuation issues, coupled with lack of desire of smaller players to exit. To maximize cross synergies across platforms, and reach out to consumers at different touch points, DB Corp Limited chose to acquire the remaining shares of its two subsidiaries, I Media Corp (providing integrated internet and mobile interactive services) and Synergy Media Entertainment Limited (radio broadcasting services) 9 . Notable private equity deals in this space include Everstone Capital’s acquisition of a 35 percent stake in S. Chand Group, and their bolt on acquisition of Vikas Publishing House 10 . 09. Mergermarket accessed on 24th January, 2013, D B Corp to buy remaining shares in two units for Rs 37.97 cr , Financial Express, December 5th, 2012 10. Venture Intelligence accessed on 24th January, 2013
The power of a billion: Realizing the Indian dream 183 Going forward, deals in the print industry will be driven by expansion and consolidation plans of the large players, who may choose to raise funds through the private equity route, or IPOs. However, challenges in terms of valuation expectations, and many promoters’ mindset of not letting go of control even at the expense of growth, may prove to be impediments to M&A activity in the sector. Radio In 2010, the Copyright Board approved a revenue sharing arrangement between radio broadcasters and music companies, leading to significant cost savings in royalty payments made to music companies by radio stations. While payments were earlier being made on a per needle hour basis, this has been changed to an advertising revenue sharing model. This ruling is considered as a step towards improving the financial health of radio stations, which have been largely making losses until now, prior to the roll out of the Phase III FM auction 11 . Regulatory changes such as relaxation of FDI limits, granting permission to own multiple frequencies in a city and the permission to air news and current affairs hold the key to the growth of this segment. In the near future, relaxation of regulatory hurdles is likely to facilitate active interest from large international private equity players and global radio majors. Films The film exhibition segment witnessed significant deal activity, with high levels of interest from strategic and private equity players. Top players in this segment have made acquisitions and consolidated their business to achieve market leadership. L Capital and Multiples private equity acquired 15.82 percent stake each in Gurgaon based multiplex major PVR Cinemas for a combined amount of USD 58 million 12 . Part of the money raised was used to acquire Cinemax India Limited. PVR acquired a 69.27 percent stake in Cinemax India Limited from the promoters, and made an open offer for an additional 26 percent for a combined amount of USD 119 million. This transaction made PVR the largest multiplex chain in the country with 351 screens, followed by Inox Leisure and Big Cinemas. 13 Keeping with the overall theme of consolidation, Inox Leisure decided to merge with three of its subsidiaries, including multiplex chain Fame India Limited. After the merger, Fame is expected to be rebranded as Inox, making it the second largest multiplex chain in the country 14 . Advertising agencies and digital media Acquisitions in advertising have been dominated by the Big 5 players acquiring local agencies, with high levels of interest in digital media, to strengthen their presence in the emerging area. Notable transactions include WPP’s acquisition of Hungama Digital Services 13 , Dentsu’s acquisition of a 51 percent stake in Taproot India 13 , Publicis Groupe’s acquisition of Indigo Systems and Technology 13 and Interpublic’s acquisition of Interactive Avenues. Going forward, digital advertising agencies may look for acquisitions abroad due to a highly crowded and relatively small domestic market. 11. FM Radio- Royalties Reduced to Global Standards, Nishith Desai Associates, September 17th, 2010 12. Venture Intelligence accessed on 24th January, 2013 13. Mergermarket accessed on 24th January, 2013, With Cinemax buy, PVR beams it to the top, DNA India, 30th November, 2012 14. Fame set to merge with Inox Leisure, Business Standard, June 8th, 2012 15. Mergermarket accessed on 24th January, 2013, Sun TV buys IPL’s Hyderabad franchise for Rs 425 crore, Times of India, 26th October, 2012 The on deck platform, offered by cellular service providers, may see limited interest with the increased penetration of smart phones and competition from competition from application providers on for IOS and android operating systems. Last year we saw Gruner + Jahr AG & Co’s acquisition of SeventyNine Private Limited, an India based operator of mobile applications and advertisement distribution platform, a space where we expect increased transaction activity. Mobile advertising is expected to witness high levels of interest from international strategic players looking to enter or expand their presence in the Indian market. Personalization, immediacy, interactivity and cost effectiveness make this a viable platform for advertisers, and a high growth area for the networks. Other notable deals The Sun TV Network won the Hyderabad franchise of the Indian Premier League amidst the controversial termination of cash strapped Deccan Chargers. They will pay a fee of under USD 16 million per year, which is significantly lower than what the Kochi and Pune franchises were sold for two years ago. 15 Samara Capital Partners acquired a 77.5 percent stake in NewsWire 18 Ltd, a financial data and news agency, for USD 16.5 million, from Network 18 13 , who have chosen to monetize noncore assets. In the animation sector, Standard Chartered Private Equity acquired a 19.7 percent stake in Prime Focus Limited, an Indian company providing creative and technical services to media companies, for USD 36 million 13 . Going forward, we believe that Indian animation and gaming companies are likely to seek capital infusion to acquire technology, develop content and retain people. Also, incumbents will seek to complement their existing portfolios and technologies through acquisitions in India and overseas. Outlook Companies in the Indian M&E industry are currently poised for substantial growth, organic as well as inorganic. Among the larger media houses, we expect deals to be driven by expansion and consolidation plans, specifically to tap the latent potential in the fast growing regional markets. Players in the television segment, broadcasting and distribution, may witness significant transaction activity to fund their growth ambitions in order to maximize the opportunity presented by large scale digitization of cable. Additionally, larger advertising companies and media houses may continue to acquire smaller, fast growing companies in the digital space, to develop or further strengthen their capabilities. “ Over the last 5 years, the media industry has not only become more integrated with the mainstream of business, but also learnt how to be better organised for scale. The financial investment community has responded very positively to this, and I expect an exponential growth in investment into this sector “ - Nainesh Jaisingh Managing Director & Global Co-Head, Standard Chartered Private Equity © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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FICCI-KPMG-Report-13-FRAMES

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