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H1 2019 Media Sector Review

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H1 2019 Media Sector Review H1 2019 Media Sector Review J U L Y 2 0 1 9 Trillium Partners Limited 23 Berkeley Square London W1J 6HE T +44 (0)20 3008 8375 F +44 (0)20 3008 4797 A MESSAGE FROM TRILLIUM'S FOUNDERS Welcome to our rebranded, content-enriched H1 2019 sector update! Trillium's DNA, as many of you know, is providing the his City career, Alex advised on IPOs and fundraisings highest quality, independent advice to corporates on (including Rightmove, Mood Media and Johnston their strategic options, the full range of M&A Press) and has worked with listed companies across transactions and accessing the private equity and debt the sector spectrum (including DMGT, Reach, STV capital markets. and WPP). His in-depth industry expertise is widely recognised and Alex is a frequent media commentator Amongst other things, Trillium is a trusted adviser on television and radio, at industry events and online. to UK listed companies focused on creating enduring advisory relationships. Over the last 30 years, the Our H1 2019 review will examine further the issues Trillium team has advised some 50 UK listed faced by UK PLCs due to the structural changes in the companies on a comprehensive range of M&A advisory market and provide an overview of Media Philip Mastriforte mandates including private company acquisitions, sector stock market performance, recent M&A and public offers, Rule 3 adviser, strategic options reviews fund raising activity in the UK and continental and asset sales. Previous listed clients include BPP, European Media sectors and our recent M&A Centaur Media, Electric Word, Informa, INM, Metal transactions in the Events, Information Services and Bulletin, UBM and Wilmington. Healthcare Communications sectors. Whilst UK public companies have been a core client We hope you enjoy this review and would welcome constituency for us for over three decades, we believe any feedback you have on how we could improve it that now, more than ever, driven in no small measure in the future. by the higher costs of MIFID II and the strategic re- focusing of our industry, many of them are poorly served, if served at all, by their existing advisers. This sentiment is shared by Alex DeGroote, who joined us in March after a 20-year career as a highly- respected, top-rated equity research analyst at leading UK middle-market broking firms, with roles at Cenkos Stephen Routledge Securities, Peel Hunt and Panmure Gordon. During 2 CONTENTS UK Media sector stock market performance Our PLC experience UK Media sector M&A and IPOs Our sector focus Top 15 H1 2019 European Media M&A transactions UK Media sector trading multiples H2 2019 outlook About Trillium Partners Trillium’s H1 2019 deal activity Disclaimer This document is being furnished for informational purposes only and does not constitute an offer to sell or Trillium is not an adviser as to legal, taxation, accounting or regulatory matters in any jurisdiction, and is not the solicitation of an offer to purchase any security, future or other financial instrument or product by Trillium providing any advice as to any such matter to the recipient of this document. The recipient should take their Partners Limited (Trillium) or any of its respective shareholders, directors, partners, officers, employees, own independent advice with respect to such matters. This document should not be relied upon in making any representatives, agents or advisers. It is not intended to form the basis of an investment decision and has investment decision and independent advice should be obtained. not been verified. It is subject to material updating, revision and further amendment. This document is intended to be distributed to limited eligible recipients. In the UK, this document is intended Trillium makes no recommendation or representation as to, and accepts no responsibility or liability for, for use only by persons who have professional experience in matters relating to investments falling within the accuracy or completeness of the information contained herein or any other information, whether written Articles 19(5) and 49(2)(a) to (d) of the Financial Services and Markets Act 2000 (Financial Promotion) Order or oral, made available and any liability therefore is expressly disclaimed. Such information is presented as of 2005 (as amended), or to persons to whom it can be otherwise lawfully distributed. the date and, if applicable, time indicated and Trillium does not accept any responsibility for updating any such information. Recipients of this document in jurisdictions outside the UK, or who are not eligible, should inform themselves about and observe any applicable legal requirements in relation to the receipt of this document. Any simulations, projections, valuations and statistical analyses contained herein have been provided to assist the recipient in the evaluation of the matters described herein; such simulations, projections, valuations Trillium is an English private limited company registered under company number 07011410. Trillium's and analyses may be based on subjective assessments and assumptions and may utilise one among alternative registered office is 10 - 12 Barnes High Street, London SW13 9LW, and its trading address is 23 Berkeley methodologies that produce differing results; accordingly, such simulations, projections, valuations and Square, London W1J 6HE; telephone (+44)(0)20 3008 8375; fax (+44)(0)20 3008 4797. statistical analyses are not to be viewed as facts and should not be relied upon as an accurate representation Trillium is authorised and regulated by the Financial Conduct Authority under number 571976 in relation to of future events. No representation or warranty is given as to any of the simulations or analyses, or as to the advising on and arranging deals in investments. achievement or reasonableness of any future projections or estimates, contained in this document. Actual results may differ considerably from the projections, simulations, valuations and statistical analyses contained herein. 3 UK MEDIA SECTOR STOCK MARKET PERFORMANCE Large and mid cap 20% +15.7% 15% The FTSE350 Media sector - which includes the bulk of the UK quoted companies by market value - has rallied by 15% since the start of 2019. 10% In context, the FTSE All-Share is up by 10% over the same period. That said, the sector is a lot smaller in absolute terms in 2019, with the likes of Sky, UBM and ZPG 5% +10.0% having been taken over and delisted in 2018. 0% Jan-2019 Feb-2019 Mar-2019 Apr-2019 May-2019 Jun-2019 Over the longer term, the UK Media sector has comfortably outperformed (+160%) the wider UK market (+44%) over the last decade. This reflects significant investor FTSE All-Share FTSE 350 Media & Photography interest in the sector and the emergence of new market-leading, digitally-focused, higher growth businesses. +159.6% 145% The best performing large/mid cap UK Media stocks YTD include Future, DMGT and the suite of digital “pure plays”, such as Autotrader and Rightmove. Only two 105% companies have conspicuously failed to participate in this sector rally, ITV and +44.2% Pearson. In both cases, there has been negative earnings momentum and, in the 65% case of ITV specifically, growing concerns over industry competition. 25% These divergent valuation trends are further explained on page 11 where we -15% consider the Digital, Marketing Services, B2B, B2C and Broadcast/Production 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 sectors in more detail. FTSE All-Share FTSE 350 Media & Photography Small and micro cap 1,000 +6.6% 950 Outside of the large/mid caps, performance trends are much less clear-cut. AIM – the broadest market barometer of small cap investing – is up slightly YTD. But this 900 masks a number of “blow-ups”, including in the Media sector. Of note, share trading volumes are down 25% YoY. 850 Small caps also face a number of structural challenges, which are unlikely to abate 800 in the near term and will lead to further delistings (see Albert Tech). These are poor Jan-2019 Feb-2019 Mar-2019 Apr-2019 May-2019 Jun-2019 liquidity; reduced research coverage caused by MIFID II; fund outflows; inability to raise equity capital; and concerns over IHT relief ceasing on AIM holdings. FTSE AIM All-Share (^AXX) - Index Value Source: Capital IQ 4 UK MEDIA SECTOR M&A AND IPOS M&A Traditional consulting groups - including for example, Accenture, which is publicly quoted - remain active in marcoms M&A. Acquisition interest stretches The UK Media M&A market has been consistently vibrant over the last four years from OOH and media buying to digital transformation, healthcare and tech-led and has maintained momentum in H1 2019, with a slight increase in YoY deal agencies. volume, in spite of the Brexit-dominated backdrop. Corporates continue to feature most heavily in the buyer landscape, accounting for over 85% of the deal activity Amongst the mid/smaller cap PLCs, we have seen the likes of Future and Centaur over the reported period. Media develop and refine their scope of business activities through M&A, the former expanding further in to the US, the latter shedding a number of non-core assets. UK Media M&A by acquiror type estimated that there were 119 completed M&A deals in UK Media. This is slightly up in volume terms on the previous year, in spite of the Brexit-dominated Private equity (PE) firms of all sizes also continue to be attracted to the Media backdrop14. So what were11 some of the deals underway in H1 ? And which sub- sector – with a particular fondness for the information services, data and 15 analytics, events and marcoms sub-sectors - and have been very active in H1 2019. sectors have featured most ? 13 253 261 229 Recent large transactions have included Charterhouse Capital’s £500m+ public 216 offer for events combine Tarsus Group, Ion Investment Group’s purchase of Acuris for £1.4 billion and the sale by WPP of a 60% stake in Kantar to Bain 7 5 Capital, which values the business at some $4 billion.
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