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Wall Street 2019 Forecast: Slowdowns, Pauses & New Models

     

It's pretty clear that 2018 was a banner year for mergers and acquisitions in the media and telecom industry. According to Forbes, compared to the third quarter of 2017, M&A activity this year increased by more than 30% for the third quarter equaling almost $1.67 trillion and marking, "the highest US YTD value on record."

Here are just a few highlights:

  • AT&T's $85 billion deal to purchase Time Warner was finalized after U.S. antitrust regulators declined to delay the acquisition.

  • Sprint and T-Mobile agreed to a $26 billion merger that would retain the T-Mobile name and combine the third- and fourth-largest U.S. wireless service providers.

  • China and the European Union approved the Walt Disney Company's proposed $71 billion acquisition of 21st Century Fox.

  • Comcast completed a $40 billion takeover of British satellite television giant Sky.

Although 2018 smashed records in media and telecom M&A, industry experts project that 2019 and 2020 won't reach quite the same heights. So what's behind the forecasted slowdown for M&A deals in media and telecom? This article will discuss four of the biggest reasons.

1. The industry needs a breather

After a period of rapid industry activity, it's only natural for companies to slow down and take the time to reassess the new business landscape.

"I think there could be a pause," says John Harrison, global leader for media and entertainment at Ernst & Young. "A series of transactions have happened that will need massive integration… There's a lot of stuff in flight. It may take time."

Part of the projected slowdown is because many of the big, obvious deals have already happened. The major players need to take time to calculate their most logical next steps.

For example, we may see a future merger between two companies--one wireless, one cable--but it will require some more time for the right candidates to surface. Such a deal might also depend on the successful rollout of the 5G mobile communications network.

2. Upcoming elections

As a presidential candidate in 2016, Donald Trump threatened to block the AT&T-Time Warner merger. Despite Trump's inability to follow up on this promise (the U.S. Department of Justice is responsible for M&A approvals), the 2020 election season creates a risk for big M&A deals to get caught in the political crossfire.

Companies such as Google, Facebook, and Amazon may be particularly reluctant to make a deal in this chilly climate for giant tech firms, which could expose them to antitrust investigations.

3. Questionable deals

Despite their eye-popping price tags, many of the M&A media and telecom deals may ultimately be detrimental for the businesses involved.

"The jury is still out on whether any of these deals are good deals," says Craig Moffett, founding partner at research firm MoffettNathanson LLC. "The strategic rationale of vertical integration is looking rather suspect at the moment."

For example, AT&T has lost 833,000 DirecTV customers this year alone, and the DirecTV business has underperformed since AT&T acquired it in 2015.

4. Uncertain markets

The stock markets were booming throughout 2017: for example, the Dow Jones Industrial Average had a return of 24 percent. 2018, by contrast, has been a wash, with many indices ending the year below where they started in January.

With fears of another recession in the short- to medium-term, or perhaps rising interest rates, companies may be loath to involve themselves in a major deal. If the uncertain economic climate continues, it will undoubtedly put a damper on future M&A deals in media and telecom.

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