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The story of 2018 for media and telecommunications companies was simple: The world is changing, and now is the time to consolidate. AT&T closed its deal for Time Warner. Sprint and T-Mobile agreed to merge. Disney bought Fox, and Comcast bought Sky. The total cost of the four deals alone was more than $200 billion.
Don't expect the same from 2019 or 2020, according to Wall Street bankers and M&A lawyers.
Executives at AT&T, Discovery and other companies have publicly acknowledged that Netflix and other technology companies are threatening traditional media companies, forcing consolidation. That trend will continue. Still, we may not see another transformational year until 2021, said John Harrison, EY's global leader for media and entertainment.
"I think there could be a pause," Harrison said. "A series of transactions have happened that will need massive integration. There's a little bit of stress on capital structures that will need to be worked down. And you probably have to have more regulatory clarity to know what's in the art of possible. There's a lot of stuff in flight. It may take time."
There are at least four reasons why we should expect to see a megadeal slowdown.
Remember when Donald Trump talked about how he would block AT&T's $85 billion deal for Time Warner in his 2016 campaign? Putting aside the fact that a president can't actually block an acquisition — that falls to his Department of Justice antitrust division, which is theoretically independent — other companies don't want to be campaign fodder for Trump and a slew of potential Democratic candidates in 2020.
At least two Wall Street advisory firms are specifically planning to hire media and telecommunications bankers with a focus on 2021, according to people familiar with the matter. Part of the rationale is that companies won't want their proposed deals to get caught in the political crossfire of the next presidential election.
"Big, complicated, potentially problematic antitrust deals are more dangerous to do right around the time of a presidential election," said Logan Breed, a partner at Hogan Lovells who specializes in antitrust merger reviews.
The last presidential election year, 2016, was a banner year for M&A, but it was also a huge year for deal terminations. As The New York Times reported, 1,009 takeovers worth $797.2 billion were scrapped that year — the largest amount since 2008, when the financial markets melted down (also a presidential election year). Many of those deals were killed because of regulatory pushback.
Trump administration regulators have already gotten a reputation for standing in the way of tech, media and telecom deals. The Justice Department blocked AT&T's bid for Time Warner, and then sued to appeal Judge Richard Leon's decision to allow it (a still-pending ruling). The Treasury Department killed Broadcom's $117 billion bid to acquire Qualcomm before a deal was even reached. The FCC nixed Sinclair Broadcast's attempt to acquire Tribune Media for $3.9 billion. We're still awaiting the outcome of T-Mobile's $26.5 billion merger with Sprint.
The climate may be particularly chilly for Google, Amazon or Facebook to try a big media or telecom purchase, said Craig Moffett, co-founder of equity research firm MoffettNathanson. Tech is facing unprecedented scrutiny from the president's camp and both parties in Congress, who have asked questions about everything from foreign election interference to anti-conservative bias.
"The technology companies are rightfully terrified of undergoing antitrust review now," Moffett said. "It seems like precisely the wrong to open that Pandora's box."
Sure, we may see CBS and Viacom merge next year. But there aren't many obvious deals left.
There are two major ways the media and telecommunications world could shift in the coming years. First, a huge technology company could buy a large media company. But again, that's unlikely to happen before 2020.
The second possible shift is the convergence of wireless and cable, such as Verizon or T-Mobile (whether or not it's combined with Sprint) merging with a large cable company, like Charter or Comcast, which owns CNBC parent NBCUniversal.
This type of deal may be tied to how 5G manifests itself in the next few years. While some believe 5G will give wireless companies a fighting chance to compete with broadband cable companies in the huge internet-to-the-home market, others are more skeptical that the technology and speed of rollout will amount to much in the next few years.
The questions around 5G could push a wireless-cable merger off for years, if it happens at all, said Moffett. That may take Verizon out of the running as a buyer (Meanwhile, AT&T will be tied up digesting Time Warner, and Sprint and T-Mobile will have to integrate, assuming deal approval.)
Smaller media companies, such as Lionsgate, MGM and iHeartRadio, could be acquired before 2021, but none of those companies is large enough to move the needle like the deals we've seen in 2018. Among companies larger than $10 billion, Spanish-language media company Univision and Discovery are possible targets. Univision actually rejected a $13 billion offer from Discovery last year, Bloomberg reported in March.
But even these companies may want to wait until there are more potential buyers at the table, knowing that AT&T, Comcast and Disney will all have to integrate their big deals. Moreover, the big media companies are changing their business plans in real time, moving from a maturing and dying licensing content structure (traditional pay-TV bundles) to direct-to-consumer models. This evolution "will change the economics of the industry" and the results will have to play out before big media companies make their next big moves, Harrison said.
One possible path to more activity before 2021 is if regulators reject the T-Mobile-Sprint deal. That could put both companies back on the block, which could lead to a tie-up with another company, such as Dish Network, which tried to buy Sprint in 2013 and has held on-and-off talks with T-Mobile for years.
It's also possible the big deals of 2018 will destroy value instead of unlocking it.
"The jury is still out on whether any of these deals are good deals," said Moffett. "The strategic rationale of vertical integration is looking rather suspect at the moment. I don't think there's any urgency of companies that have been on the sidelines to follow in the footsteps of AT&T and Comcast."
AT&T has already destroyed at least half of DirecTV's value since acquiring it for $49 billion in 2015, said Moffett, and a similar situation could play out Time Warner.
Comcast had to pay top dollar to wrestle Sky away from Disney after making Disney pay nearly $20 billion more for Fox's assets than originally planned.
At any rate, the media and telecom world will take the next two years to see how the deals that happened this year pan out, said Moffett. It's possible the results will scare them away for even longer.
Low interest rates and rising equities have made it easy to raise debt for years. If the country falls into a recession, or if interest rates keep rising, companies may not be as willing to take on a lot of debt to fund big deals, Breed said.
Volatility is typically anathema to large M&A. If the big stock market swings of the past several months continue into 2019, companies may put the brakes on acquisitions in all sectors, Breed said.
"I think the macroeconomic climate is likely to be somewhat less friendly next year," Breed said. "We're hitting a rough patch now. That would have an effect."
Disclosure: Comcast is the owner of NBCUniversal, parent company of CNBC and CNBC.com.