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Entertainment One raises ?130m to help fund Audio Network acquisition

By Michele Maatouk

Date: Friday 12 Apr 2019

Entertainment One raises ?130m to help fund Audio Network acquisition

(Sharecast News) - Entertainment One said on Friday that it has successfully placed 28.9m shares at 450p, raising £130m to help fund the acquisition of UK score producer Audio Network.
The price represents a discount of around 7.9% to the closing price of the shares a day earlier.

The Peppa Pig owner announced the £178m acquisition after the close on Thursday, saying that it enhances its presence in the rapidly-growing music sector, with attractive growth that is complementary to its music, film, television and family brands businesses.

In addition, the deal will strengthen its growth, margin and free cash flow profile by scaling its music business combined with Audio Network to annual revenue exceeding £75m proforma as of 31 March 2018. The transaction is expected to be accretive to earnings per share in the financial year ending 31 March 2020, including revenue opportunities and cost synergies.

RBC Capital Markets said in a note that the acquisition ticks all the boxes.

The bank said that while the deal is neutral to its 500p price target on outperform-rated Entertainment One given its relative size, "underneath the hood" it has strengthened eOne's competitive position in music and improved the growth and free cash flow profile of the company.

"The purchase price represents an EV/EBITDA multiple of 15.0x based on 2018 EBITDA of £11M," sad RBC. "For an asset with double-digit growth, recurring revenue, stable mid-30% EBITDA margins and above-average free cash flow conversion, we view the multiple as attractive and opportunistic."

Fiona Orford-Williams, analyst at Edison Investment Research, said this looks to be an attractive deal from both sides.

"Audio Network moves to an independent home and retains the ability to strike and maintain deals with a very wide range of channels, whilst gaining additional catalogue from eOne to add to their music resource. eOne benefits from bringing in Audio Network's high margin business and strong cash conversion and can also save money contracting music for its own film, TV and Children's productions directly rather than via third parties."

At 1320 BST, the shares were down 3.7% at 459.40p.

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