Ghosts in the machine. Mergers and Acquisitions at NAB 2015

Ghosts in the machine. Mergers and Acquisitions at NAB 2015

In my first 20 years in the industry I believed that plus or minus a bit of smoke and mirrors, smart broadcast and media customers could successfully evaluate the leading innovators to make well informed buying decisions. Sellers sold and buyers bought. Wouldn’t it be great if it were as simple as that? But at NAB there are others amongst us. Investors.

Whilst it’s customers’ investment in vendors’ technology and services that pays for the whole show, the whole industry in fact, they are not always only dealing with the vendors. Many developers and manufactures rely on suitable external investment to get their businesses to the next level.  “Suitable” for whom?

Appropriate investment is more important than ever to support the simultaneously converging and diverging media technology industry. As UHD promises to explode our eyeballs and “TV everywhere” is getting closer to finding the advertising-everywhere money, never have so many business models been so disrupted. Investors, advisors, financiers, private equity and venture capitalist are new spirits amongst us at NAB, haunting the show floor searching for opportunity.

Our media-meshed industry is now running fast with many overlapping cycles in play. Technology innovation, in, managed services and SaaS at one end versus the unprecedented changes in audience behaviour at the other, requires huge investment to innovate and deliver. Much more than can be delivered by organic growth alone.

Investors, of course, are searching for something to give a financial return that suits their own current appetite for risk and reward. Many developers and manufactures come to NAB actively seeking backing too. New funding to get their idea off the ground or to boost their next phase of innovation or expansion. For vendors who have gained recent new financing the challenge is to swing into action and get their latest value proposition front and center.

For many vendors it’s now a two-way shop window at NAB. Selling their latest solutions to prospective customers whist also promoting their company’s innovation and potential value to the investment community.  It’s a very tricky balancing act.

Who’s zooming who?

Which of the recent mergers or acquisitions actually create and deliver a better value proposition for paying customers? Does a boost in vendor investment, a merger or a change of owner actually benefit customers?

Mergers & acquisitions (M&A) activity continued apace after last year’s upturn, providing a valuable chance to pause and review the impact of last year’s activities too.  The IABM currently cites annual market size for the media technology industry at about U$ 40billion for the sectors that it addresses. The huge overlap with the IT industry and new cloud services makes that number potentially much larger. Gartner recently cited 25% growth in “the emerging and disruptive software defined video” sector at U$10 billion by 2018. It’s even more interesting when you look beyond the numbers.

Some highlights: last year we saw M&A action from Belden (Grass Valley), Dalet (Amberfin) and Vislink (Pebble Beach Systems). Later on in the year Ericsson completed its acquisition of Red Bee and Nordic Capital AS announced their intention to acquire trendsetters Vizrt which completed recently as well.

Serial acquirer, Oracle, made one of its most media centric purchases to date by acquiring highly respected archive innovator Front Porch Digital. Many customers cited this as being as much about high quality people. We’ll look further at that aspect next month in Peoplesoft part two of this feature.

Vitec Videocom one of the industry’s most active acquirers recently bought Paralinx for its real time wireless monitoring and in October last year completed its purchase of Autocue.  CEO Matt Danilowicz got my attention with this statement “M&A is easy. Integrating companies, that’s hard. Really hard…. the reason that Vitec is still one of the most profitable companies on the show floor is also because we’re also one of the least well-known…They know our brands, they know the businesses that we bought, but they don’t really see us – and that’s very intentional.” The group versus micro brand and segment reach is one of the biggest challenges in successful M&A; everyone has an opinion and the perceived connections between brands are often highly intangible.

It seems highly respected live graphics specialist ChyronHego was finally taken private in a merger. No space for the details here but, if you really want to study the real challenges of governance, communications and value engineering in precision M&A it’s well worth reading up on ChyronHego.

Less interestingly so far, Avid acquired Orad for an all share deal worth about $60m, on a turnover of about $40m. A low valuation perhaps, given Orad’s cash position and its highly competitive yet under appreciated technologies and products.  Orad themselves had previously acquired UK mam specialists IBIS. Come on Avid.

Leadership and Perception. And Softrock Defined Video

For Imagine Communications NAB 2015 was THE moment. The big push. And they were everywhere, even on the NAB App home screen. Imagine’s campaign over the last 2 years since acquisition by The Gores Group illustrates two key dynamics in M&A: leadership and perception.

Anyone invited to The Joint at The Hardrock Hotel to see ImagineLive! feat. soft rockers Foreigner couldn’t fail to be impressed by CEO Charlie Vogt’s on-stage converged-confidence. He is sure he knows where we are all going. Or by Imagine CTO Steve Reynold’s 30-minute buzzword-bingo verbal tour de force. Leading the 1700 strong crowd with Imagine’s vision of the industry future, with some repetition (Cloud, IP, SDN etc.) but certainly no hesitation or deviation.

This was real marketing folks. “Make the market” or “serve the market” is what the books say. Imagine Communications with Gores backing is attempting both. Ambitious. Either way, the perception of value is crucial, both to paying customers now and to secure future investment. It’s also what astute investors think very carefully about. Successfully matching a company transformation with the global media-meshed industry is as difficult as it has ever been. Investors’ typical 3-year outlook can be painfully short. Consumer and mobile technology “hype-cycles” are going faster whilst typical media industry buying and budgeting periods remain slower.

Lining up Vince Roberts from Disney/ABC Television to confirm their vision and close proceedings was almost, as they like to say all too often in the US, “unprecedented”.  He neatly gave us Disney/ABC’s Television’s strategic line “By leveraging evolving IP and Cloud technologies we are able to move beyond what’s currently possible with traditional proprietary ‘Big Iron’ broadcast infrastructures,” and one which might indeed help drive the industry forwards.

As Foreigner took the stage to croon, “Feels like the first time….” a sharp-witted CTO remarked to me, “…trouble is Russ, I remember the last time…” Genuine frustration born of previous broken promises no doubt but that seemed possibly too simplistic. Broadcast and media technology is now a mature industry. Many established global brands do have a challenging legacy. Belden with Miranda then Grass Valley is going through a similar journey (“Don’t stop believin’?” plenty more soft rock defined anthems where that came from).

Quantel and Snell just got married, also with new leadership as Lloyds Capital appointed Tim Thorsteinson as CEO. Quantel and Snell’s vision is for an open and less proprietary approach to IP within the broadcast facility.  Thorsteinson elucidated further for Quantel as “…one of the larger independent businesses in our industry, with world class products and a rich history of innovation. I want to build on that tradition to create an organisation 100% focused on helping our customers prosper in the media technology world.”

The dynamics of leadership and perception were illustrated again with the departure in October of EVS CTO Joop Jansen, which left many customers puzzled. EVS has one of the strongest value propositions in the industry and is highly professional. Another indicator of a mature industry searching for growth.

Streaming and Distribution. Walk this way…

Imagine also made two notable acquisitions over the last 12 months. File-meisters Digital Rapids last NAB yielded the new Zenium software-defined workflow management proposition. RGB Networks, acquired in January, adds Dynamic Ad Insertion (DAI), Just-in-Time Packaging and Cloud DVR technologies.  These highlight key game-changing areas to rewire the revenue from advertising and subscribers.

Cloud DVR technologies will be key in the next cycle. The line between TV and mobile services is blurring, and in many cases that blur is “the cloud”. Just after IBC last year Ericsson announced it’s planned $95 million acquisition of Fabrix Systems, another innovator in cloud-based platforms for delivering DVR, and VoD services. This acquisition is intended to help service providers deliver what Ericsson calls “TV Anywhere” and which it defines as “viewing on multiple devices with high-quality and relevant content for each viewer. Cable operators and telcos gaining dramatic growth in video streaming need to reach consumers and revenue cost effectively on multiple screens”.

Ericsson and many others are now focused on the importance of the game changing opportunities in distribution technology, ABR and IP. Going beyond the linear playlist. And the pivotal role of telco’s and mobile operators in supplying future growth in media consumption and crucially advertising revenue. Listening to this year’s customer-side reaction at NAB, Broadcast Innovation thinks that Telco’s, their systems integrators and service providers will be the dominant customers for the media technologies on offer at NAB very soon. Not broadcasters. Both will have to find a way to work closely but Telco’s and, mobile operators too, have more pace.

Patience and Perspective. Don’t fear the reaper

The financial spirits amongst us at NAB, haunting the floor searching for opportunity, add a complex dimension for customers trying to select the crucial new technologies that will help their own broadcast and media businesses innovate to survive and grow. For some it gives re-assurance and stability, for others the clarity and focus of their favorite vendor is often lost.

Increased perspective and patience are required at times by customers trying to evaluate the benefit for them of a merger or acquisition. Perception. New leadership can sometimes unintentionally polarize the perception of both customers and also the inherited staff too. People are much harder to evaluate than technology and market segments. More on this next month when we’ll look at other important factors in M & A cited by customers as vital for success: People and partnerships.

 First published in TVB Europe May 2105