- Digital transformation in the media industry is strongly driven by M&A projects.
- Drivers for M&A activities remain intact in the medium term.
- Axel Springer and Bertelsmann each invested approximately € 4 billion in holding companies for digital transformation from 2011 to 2017.
LSP Digital has been helping media and telecommunications companies to digitally transform their core businesses and portfolios for nearly 15 years. At the same time, acquisitions and holding companies play an important role. This past spring, Bertelsmann announced that the company had dedicated a cumulative investment volume of € 4.6 billion towards the setup of digital growth platforms and company acquisitions from 2011 to 2017. Together with our sister company Statista, this was used as an opportunity to evaluate additional media companies by comparison.
Macroeconomic scales of the M&A market
According to Boston Consulting Group, the global volume of M&A transactions across all industries amounted to approximately US$ 2.5 trillion in 2017, with roughly US$ 1.4 trillion from the US$ 2.5 trillion in Europe and around US$ 240 billion in Germany.
In Germany alone, 2,167 acquisitions were made in 2016. Worldwide, M&A volume rose by an average of 8% per year between 1985 and 2016, whereas over the same period, the global GDP increased by only 5.9% per year. We at LSP assume that in the intermediate term, the driversfor M&A activities will remain largely intact. To this end, we have observed four core drivers at present:
1) Level ofinterest rates
The financial market continues to be characterized by low interest rates. In the medium term, however, we see an increase in interest rates due to, among other things, the Fed’s increase of the base rate but also of that in Europe, which could accordingly curbwillingness for higher financing costs for M&A activities.
2) Increasing profitability
Efficiency gains and new business models due to digital transformation, as well as consolidation in traditional markets are favorable prerequisites for on-average rising profits - and financial margins for acquisitions.

3) Technological progress
Above all, the high speed of technological developments outside of digitization (e.g. nanotechnology, biotechnology, etc.) obliges large companies to procure know-how. The increasing quantity of M&A deals of large digital platforms demonstrates that even these are forced to acquire expertise.
4) Future expectations of rising profits
Stock prices reflect investors’ expectations of growing profits. By way of company acquisitions, companies are countering this pressure with organic as well as continued inorganic growth.
Media Industry as the “Front Runner” of Digital Transformation
The McKinsey February 2017 study, “The Case for Digital Reinvention” assesses the impact of digitization on different industries. Managers from different industries were asked about their perception of digital saturation in different industries. On a scale of zero percent (no change due to digitization) to 100 percent (fully digitized), the media industry was evaluated as the most digitized industry with 62%, followed by retail (55%) and high-tech (54%), while the automotive industry was digitized to 32%. Of all industries, an average of 37% is already digitally “permeated.”
As the changes in the media industry due to digitalization are sufficiently well known, they will therefore no longer described in detail here. The consequences of digitalizing media industry included is intermediation, that is, eliminating individual stages of the value-added chain, digitalizing the core product, and altering the distribution of media content and/or its mode of consumption. Due to the eventuating threat to its existence, the media industry was inevitably one of the pioneers regarding digitization.
The challenges for media companies can be seen, for example, in customer value. For example, the annual value contribution through print products per end customer in classic reach marketing remains in the three-digit range, whereas the figures for an online customer can be placed at 10 to 30 € and for a mobile customer at 2 to 10 €. With declining circulation and advertising revenues and comparatively low monetization of digital reach via advertising and paid content, other business models must support revenues and earnings.
To keep up with technological progress by acquiring know-how and/or diversifying the portfolio, investing in and purchasing companies are relevant levers to compensate for decreasing sales and profits. To evaluate this trend, we have analyzed the investment activities of selected German media companies.
Methods
The study examined investments of selected large media companies from Germany with a digital aspect. We concentrated on the following companies: Axel Springer SE, ProSiebenSat.1 Media SE, Ströer SE & Co. KGaA, Hubert Burda Media Holding KG, and Bertelsmann SE & Co. KGaA. In the period under review from 2011 to 2017, more than 225 agreements were recorded and evaluated. As a data base, we used annual financial statements, company reports and presentations, publications in the Federal Gazette, and press releases. A few missing data points were completed using industry benchmarks. We did not consider investments for which we have not found any reliable data. As a consequence, what has emerged is not a complete illustration of investment activities, but one that we believe to be representative. The selected companies have a combined market share of the media industry in Germany of roughly 20%. Eighty-eight investments were listed for ProSiebenSat.1, 56 for Ströer, 53 for Burda, and 28 for Axel Springer. The study covers a total investment volume of € 12.7 billion over the entire period under review from 2011 to 2017.
Observations
Axel Springer has the largest listed contract in 2015 with the acquisition of 98.7% of the French portal SeLoger for € 633 million, followed by Burda’s purchase of Immediate Media for € 310 million in 2017. Ströer paid € 300 million for T-Online and Interactive Media, and in fourth place is the acquisition of etraveli by ProSiebenSat.1.
According to our estimates, Axel Springer achieved roughly 8% of its digital revenues of € 2.6 billion through organic digitalization, i.e. by digitally transforming its internal core business per business development activities. Consequently, 92% is attributable to inorganic measures. At ProSiebenSat.1, organic digital sales account for approximately 10%, and at Ströer and Burda for only 2%. These organic digital business models often focus on ad-financed models and paid content models.
With annual revenues of € 3.6 billion in 2017, Axel Springer invested nearly € 4 billion in equity investments in the period from 2011 to 2017, making it the “good runner-up” in investments. Only Bertelsmann invested € 4.6 billion more. However, this investment volume at Bertelsmann is in relation to annual revenues of € 17.2 billion.
This emphasizes Axel Springer’s high level of investment activity. With reported revenues of € 4.1 billion in 2017, ProSiebenSat.1 invested close to € 1.7 billion, followed by Ströer with an investment volume of about € 1.2 billion and Burda with € 0.9 billion. It should be noted that as a private company and in comparison to its listed competitors, Burda has limited access to financial markets.
Digital Sales Shares as Relevant KPI

Primarily through investment activities, media companies have increased their digital revenue share over the past few years. Axel Springer had the highest digital share of 71% in 2017. Although Burda had the lowest growth from 2011 to 2017, it is still in second place because of its solid starting position. However, the identification of digital revenue share is handled very differently. For example, Bertelsmann categorizes both the services subsidiary arvato, which are generated with “digital” customers, and large portions of RTL turnover as digital revenues. Using a more B2C-driven definition, digital revenues of € 7.9 billion would probably be significantly lower.
Looking at digital profits, Axel Springer reports 80% digital EBITDA for 2017; Ströer reports 47%, which is closely followed by Bertelsmann with 46%. In comparison, Burda with 23% and ProSiebenSat.1 with 18% indicate an even stronger EBITDA reliance on traditional business. One successful example in this respect is the acquisition of the French company SeLoger by Axel Springer. SeLoger consistently generates an EBITA margin of more than 60%.
All companies under consideration increased their sales in the period from 2011 to 2017. On the other hand, the media industry's “traditionalists” such as Gruner + Jahr, a Bertelsmann division, or Funke Gruppe (excluding the acquisition of the print titles of Axel Springer) have lost more than 20% of their revenues since 2011 and have digital revenues of less than 20%.
Strategic Fields of Investment Activity
Looking at the German media companies, it becomes clear that digital transformation in the media industry is strongly propelled by M&A projects. In the context of strategic digital transformation, thinking often takes place within a framework of three visual fields:
- Digitalization of the core business
- Digital expansion of the core business
- Diversification
Despite all the lack of clarity, we have attempted to designate investment activities to these fields. Axel Springer’s investment focus has developed over the years from ad sales to paid content/services. The company is not seeking to diversify, but instead aiming to digitally expand its core business. Fifty-five percent of all agreements listed by Axel Springer are assigned to this area. The change in the search focus can be explained by the fact that only a few targets in the classifieds context (expensive) are still to be acquired. A similar progression can be seen at Ströer: 50% of Ströer’s listed investments can be attributed to digitally expanding its core business, and 24% to diversifying its portfolio. ProSiebenSat.1’s strong e-commerce investment strategy requires that 89% of all listed contracts are allocated to the field of diversification.
A study conducted by LSP in 2016 about corporate venturing activities of the same German media houses from 2006 to 2015 emphasizes these activities. Of all 428 listed agreements, 65% of them referred to targets from business models unrelated to the media industry. 38% of all contracts related to e-commerce. In fact, ProSiebenSat.1 had 75% tied to unrelated agreements and 53% linked to e-commerce.

Conclusion
The results of the study confirm our assumption that equity investments and acquisitions in the digital sector are highly suitable levers to both compensate for declining sales and profits and to accrue know-how. The investment strategies of individual media companies, such as those of Axel Springer, indicate that targeted investments in the digital sector can have a positive impact on revenues and earnings, especially in an industry that is undergoing major changes due to digitalization. However, it is not only in the media industry that acquisitions and investments in the digital sector play an important role in digital transformation.