A Third Reason to Acquire - Expanding Disney’s M&A Vision

Disney is a company that I’ve admired most of my life (and as such you’ll likely see some posts on this blog about them). Few companies have endured for so long by primarily using the tools of creativity and innovation.

As I’ve studied the company one thing that I admire is the simplicity - yet power - of their acquisition strategy. This strategy has guided the acquisition of some of the largest brands in recent years including Pixar, Marvel and Lucasfilm. Kevin Mayer, Disney’s EVP responsible for Strategy and M&A articulated this in an interview by saying there are, at its core, two things Disney buys:

1. Channels to distribute their content through

   Disney is unmatched globally with the breadth and depth of their media distribution network. Disney’s channels includes radio and television networks with a global reach, movie studios, theme parks scattered around the world, an increasing footprint of Disney store retail experiences and consumer packaged goods to name just a few. Disney looks for opportunities to purchase new channels by which to better monetize the content they produce.

2. Premium content sources to distribute through their channels

   Channels aren’t very useful without content to push through them. Disney acquires content creators - such as Pixar, Marval and LucasArts - to provide them with more, high quality content to push through their range of channels. Disney is able to outbid media rivals for these properties because they’ve built such a broad base of channels by which to distribute their content. This distribution base enables Disney to better monetize content than their competitors, enabling them to win competitive bids without compromising the business case.

The discipline in executing their acquisition strategy is admirable, however there might be an opportunity to acquire a third type of company:

1. To improve existing channel quality Rather than assuming existing channels are optimized and acquisitions are only needed to improve the breadth of channels, by acquiring companies that improve the quality - and profitability - of existing channels Disney has an opportunity to improve financial performance while maintaining quality. These acquisitions are likely not headline-grabbing billion dollar moves, rather they involve purchasing specialized talent and tools that can be applied to the breadth of the Disney Company.

Just as Disney has a great breadth of channels, there is also a great opportunity to optimize these channels. To execute on this third strategy, as a major advertising player Disney could purchase an ad network or advertising optimization tools to improve their monetization across their advertising-supported channels. Alternatively, Disney could acquire companies with expertise on spending optimization to gain better use of the now bountiful wealth of data generated in their theme parks by their new Magic Band offering. Beyond these two use cases there are variety of other ways Disney can improve the performance of their channels by acquiring teams and companies (typically small) that bring expertise, technology or other assets beyond just content or end users.

To wrap things up - a focused and well-defined acquisition strategy is important to avoid reactionary purchases. Disney has an opportunity to continue their strong experience of creating value from acquisitions by expanding where they look.