Consolidation proves production sector remains attractive to investors

Media sector banker Harry Hampson believes that the TV production sector is still attractive to investors and that consolidation should be welcomed in a challenged industry.

Consolidation isn’t to be feared and should instead be seen as a “natural reaction” to the current contraction of the global TV industry, claims media sector banker Harry Hampson, who advised on the sale of All3Media to RedBird IMI.

That deal saw Jeff Zucker and Gerry Cardinale’s private investment company conclude its £1.15bn (US$1.45bn) takeover of the European production and distribution group last May.

All3Media is a major UK-based production and distribution company known for a wide range of successful TV shows across various genres. Some of its best-known TV shows include unscripted formats like The Traitors and Gogglebox and scripted titles including Call the Midwife and Liar. All3Media also owns more than 40 production companies, such as Studio Lambert, Lion Television and Objective Media Group.

Launched in late 2022, RedBird IMI plans to build a global media company spanning news, entertainment and sport. The All3Media acquisition was the fifth completed investment following deals for the Los Angeles-based scripted production company Media Res, the unscripted production company EverWonder Studios, the children’s entertainment company Hidden Pigeon Company and the digital news outlet Front Office Sports.

Such M&A activity has become commonplace in the last two years following the end of the ‘Peak TV’ era. US studios, streamers and media giants have consolidated to trim millions off their inflated overheads. Many indie prodcos, meanwhile, have been forced to throw their hat in with larger production groups to ensure their survival during the ongoing commissioning freeze.

Many within the industry often associate consolidation with lay-offs, downsizing and the shuttering of unprofitable divisions. However, Hampson – who also worked on the 2011 sale of Elisabeth Murdoch’s Shine Group to News Corp, as well as advising the latter company on its ill-fated bid for BSkyB – says that the merging of companies can have many positive outcomes.

“Broadcasting is a challenged industry and there will be further consolidation in the production industry in the next 12 months, so consolidation is a natural thing to do,” says Hampson, who is global chairman – investment banking/corporate & investment bank EMEA for investment bank JP Morgan.

“If your objective is to create a sustainable business, one of the ways [to do that] is to consolidate because you can share the costs across a bigger base. You can smooth out the dips – when you have a dip in revenue you’ve got other things which fill in the gaps. You can also use it as a way to attract talent.

“But it’s a people business, so you have to figure out how you’re going to work together to see who gets what share of the business going forward.”

Hampson has been at JP Morgan since he began his career in 1988 and is currently one of the global chairs of investment banking and a member of the executive committee. His current role is focused on managing and developing senior client relationships in the EMEA region.

He was involved in the UK’s previous Conservative government’s controversial plans to sell public broadcaster Channel 4, which were eventually shelved, much to the relief of the UK indie production sector.

Hampson has worked on over 100 IPOs during his career and many major transactions in the technology, media and telecommunications sector since 2000. And IPOs always involve the often thorny question of how much a prodco is actually worth.

“Valuing a production company or TV business in general is no different from valuing any other type of company. It’s all about your future plans and how reliable and predictable the business is,” is how Hampson put it during a panel session at a recent RTS event.

“IP ownership underpins the future because you own the rights and you know that they’re likely to continue to yield value in the years ahead. So those production businesses with IP are going to be valued more highly. Any potential buyer is going to be focused on that.

“Furthermore, it’s all about the breadth of the business and the breadth of the customers. If you’re dependent on one client, you’re more likely to suffer in the future if they decide not to commission more programming or go to one of your competitors instead.”

Hampson says that a combination of many of those factors helped to make All3Media such an attractive proposition prior to its sale, with multiple would-be buyers kicking the company’s tyres.

“There is a set of precedents around which these businesses get sold,” he said. “When we sold All3Media and Shine, they both got more or less the same multiple, which was roughly 12-times their EBITDA.

“There was a lot of interest in All3Media, not just from one company but around 15 different parties were serious. Why? Because it’s a business of scale, a leader in the production industry, with a fantastic roster of talent and a library that underpins the value. It supplies broadcasters and streamers all around the world.

“It’s like selling your home – you’ve got to have numerous buyers interested. We were able, alongside the team at All3Media, to create a very competitive option. That’s the job that people like me do; to create competition around a business that allows the optimisation of the outcome for the sellers.”

Despite the severe contraction in the worldwide audiovisual sector, Hampson is adamant that the TV industry is still capable of turning the heads of the corporate world’s big spenders.

He said: “Yes, we’re in a difficult period and I’m sensitive to those challenges, but if you’re buying a business, you’re more interested in what you think is going to happen tomorrow rather than what’s happening today. I think all of you are in an industry that’s very dynamic and still incredibly attractive to investors.”