Virgin Media deal will be “game changer” for M&A, says Credit Suisse’s Drew

Liberty Global’s acquisition of Virgin Media could open the gates to a new wave of mergers and acquisitions in the cable sector, Cable Congress attendees heard this morning.

Marissa Drew, managing director, co-head of global markets solutions group, Credit Suisse said that the Liberty Global-Virgin Media acquisition was a “game changer”. “This says that the M&A market is back if it makes industrial logic,” she said. The deal was based on a “global auction” to find the best clearing price, she said.

“Cable has always been seen as a sector that delivers – the industrial logic is there [for M&A],” she said. There was no logic to have 7,000 small operators in a European market that would prosper on the basis of scale and scope, she said.
Drew said that regulators’ approach to mergers was “softening” as it realised that consolidation delivered results in broadband competition without necessarily impacting adversely on TV services.

Drew said that private equity groups had been reluctant to take risks over the past few years because of the challenge of exiting via the public markets. However, the industry was now seeing a return of the public markets to cable, giving those groups the opportunity to exit via IPOs or, alternatively, via mergers and acquisitions.

Debt markets love high cash-flow businesses rather than those that need much of that cash to reinvest in the business, said Drew, meaning that mergers between cable and content businesses were less attractive to financiers. Highly-leveraged content businesses rarely performed well, she said. “I do think the debt community is quite cautious about non-asset rich companies,” she said.