Entertainment companies rely heavily on investment banks to raise capital through equity and debt offerings in order to produce movies, TV shows, video games, and other content. Investment banks help entertainment companies with mergers and acquisitions, divestitures, and restructuring as well. The entertainment industry investment banking groups at the major banks like Goldman Sachs and Morgan Stanley provide expertise in valuing intellectual property, structuring financing packages, and advising on high profile deals. Investment banks benefit from the outsized fees and prestige that come from working with household name entertainment clients.
Investment banks provide vital capital raising services to entertainment companies
The entertainment industry is extremely capital intensive. Major motion pictures can cost over $100 million to produce and market. Hit video games like Call of Duty or Grand Theft Auto can cost upwards of $200 million taking into account development and promotional budgets. Theme parks cost billions of dollars to construct. Entertainment companies rely heavily on investment banks to raise the capital necessary to fund content production and other business operations. Investment banks underwrite equity offerings, advise on debt issuance, and structure innovative hybrid instruments to optimize the capital structure for entertainment clients. The ability to access large amounts of capital efficiently is crucial for entertainment companies to grow their revenues and profits.
M&A and corporate finance advisory services fuel entertainment industry consolidation
The entertainment industry has experienced massive consolidation over the past 25 years as a result of deregulation, technological disruption, and globalization. Major media, gaming, and theme park companies have become even bigger and more diversified through mergers, acquisitions, spin-offs, and divestitures facilitated by investment banking advisors. For example, Disney acquired Pixar, Marvel, Lucasfilm, and 20th Century Fox with help from investment banks guiding negotiations, performing valuation analyses, and raising debt/equity capital. Meanwhile investment banks have helped other entertainment brands like DreamWorks Animation and Scripps Networks get acquired. Investment bankers structure and execute many types of strategic transactions for entertainment clients.
Investment banks provide restructuring and distressed M&A services
The hit-driven and fickle nature of the entertainment business means companies periodically experience distress. Investment banks have assisted entertainment companies undergoing financial restructurings or bankruptcy processes with services like debtor-in-possession financing, Chapter 11 exit financing, divestitures of non-core assets, and balance sheet restructurings. The investment banking entertainment groups at Houlihan Lokey, Moelis, and LionTree are particularly active restructuring advisors in this sector. When entertainment companies falter, competitors and financial sponsors swoop in to acquire distressed assets, often with help from M&A advisors at investment banks.
Valuing intellectual property is crucial for investment bankers in entertainment
The lifeblood of entertainment companies is the intellectual property they own such as well-known movie and TV franchises, video game titles, characters, theme park attractions, and consumer brands. Investment bankers must excel at valuing existing and potential IP when advising entertainment clients on financing and M&A deals. They use discounted cash flow analyses, comparables of recent licensing deals, and rules of thumb based on metrics like box office gross to value IP assets. Correctly assessing both tangible assets like studios and parks and hard-to-value intangible creative assets is indispensable for entertainment investment bankers.
Entertainment companies and investment banks enjoy a symbiotic relationship. Entertainment firms rely on investment bank capital raising, M&A, restructuring, and valuation expertise. Investment banks earn lucrative fees and prestigious client relationships through advising on entertainment industry transactions.