Here’s a blast from the past.
Remember Informa, publisher of the Lloyd’s List and The Earthmover & Civil Contractor Magazine?
The last time Alphaville wrote about the company it was the subject of a leveraged takeover bid from a private equity consortium, that was eventually credit crunched.
How things change.
From RNS on Tuesday:
The Board of Informa plc (“Informa” or the “Company”) notes the press speculation regarding a potential acquisition by Informa of Springer Science + Business Media (“Springer”), whose principal shareholders are Cinven and Candover (the “Shareholders”). Informa confirms that it is in discussions with the Shareholders about acquiring Springer.
Informa has been given access to due diligence materials to enable it to be in a position to make a formal proposal to the Shareholders. There can be no certainty agreement will be reached with the Shareholders on terms that are acceptable to the Board of Informa.
Or do they?
We ask the question because if Informa is going to pull off this deal then it is going to mean taking on a lot of debt. Clearly the idea of leveraging against the cashflow of niche journals and other publications has not gone away.
Thomas Singlehurst, media analyst at Citigroup, explains:
The Times suggests that interested buyers in Springer have been looking to spend under €400m for 100% of the equity, as impending debt maturities have forced valuation down. According to the article, Springer has debt of c.€2.16bn. In 2008, Springer had revenues of €892m and adjusted EBITDA of €285m (compared to Informa’s 2008 revenues of £1286m and adjusted EBITDA of £321m). At €2.6bn (€2.2bn debt and €400m equity) this implies a valuation of c.2.9x sales and 9x EBITDA.
Which means, Informa, which has net debt of nearly £1bn, will need a rather large cash call.
The issue here is the significant amount of debt that Informa would have to take on from Springer. On a pro-forma basis, if the group were 3x levered (net debt/EBITDA), it would mean Informa would need to raise £1bn-£1.5bn in equity (55% to 85% its current market cap).
Indeed, Lorna Tilbian of Numis Securites has reached much the same conclusion.
We have done a back-of-the envelope calculation. We estimate the combined group would have EBITDA of £620m, equating to PBT of £460m. Given the greater resilience of the enlarged group (with higher Academic & Scientific publishing revenues) we think it could support 3x net debt/EBITA, implying total net debt of -£1.86bn. We think Informa would therefore look to raise £1.3bn through a rights issue. We calculate a 1 for 1 at 225p raising £1.3bn would give EPS of 29p against a TERP of 270p.
That said, most analysts think the deal makes sense.
Back to Mr Singlehurst again:
While we await further details on price / funding and uncertainty could continue to drag on the shares, Informa seems confident that the deal will generate value for shareholders and improve the group structure. We agree that strategically this would make sense and would weight the business more towards the more resilient academic publishing business (currently Informa is 20% Academic Publishing, 30% Professional & Commercial B2B Information, 50% Events and Training by revenue and split 1/3 each way on operating profit)
Here’s the early price action in Informa:
Related links:
Informa eyes deal for Springer – FT
Informa’s gravitational pull – FT