Consolidation is an inevitable function of capital markets, and sometimes, a particular industry goes through a robust period of deals. Media mergers and acquisitions occur in different segments of the media industry, including mobile technology, television entertainment, online publishing, and more. When one media company buys another and integrates that business into its own, the deal is a merger or acquisition. Some media mergers and acquisitions are friendly, while others are considered hostile, depending on the target company's willingness to be acquired.
Media mergers and acquisitions can be done as strategic deals so that both businesses bring something equal or similar to the table. Combining these two entities will create one larger conglomerate that can be more competitive. There should be synergies between the two media companies so that each business complements the other in some way. In this type of deal, neither media company is in distress nor uses a business model that is becoming obsolete.
If a traditional media entity, such as a television entertainment firm, expands to acquire a new media business, such as an online venture, the integration may be less seamless. As media continues to evolve, traditional businesses may try and grow via acquisition instead of investing in organic or internal growth. If, for some reason, the two businesses do not mesh well or the newly acquired business does not generate the expected revenues, the buyer could then spin it off or sell it. This was the case between entertainment giant Time Warner and Internet company AOL in 2009.
As some media technologies do go out of style, there are distressed deals that unfold in media mergers and acquisitions. When a media company's business model is failing because of newer technologies that are pushing traditional media under, the value of the distressed company falters. The stock price becomes depressed, and revenues begin to decline. If a new media company sees value in the traditional media entity's business, either in the management team or in the content that is being produced despite the medium being used, it may consider a distressed deal. In distressed media mergers and acquisitions, the buyer is more likely to purchase assets or the business at a bargain, and the target company improves its chance of gaining value.
Private equity firms can participate in media mergers and acquisitions. A private equity firm is an asset management entity that focuses on building a portfolio by purchasing businesses that are in distress, turning the business around, and selling the company in the future. When there are pockets of the media industry that are underperforming, these sectors become attractive targets for media acquisitions by private equity firms.