V I D E O • A G E OC T O B E R 2 0 1 1 44 BY BOB JENKINS One of the great dynamics and contradictions of the content business today is, ironically, that as audiences become ever more fragmented, the business itself is becoming ever more consolidated, with greater and greater market shares increasingly concentrated in fewer and fewer hands. According to a VideoAge article in the May 2011 Issue, the international TV industry is now concentrated in the hands of six major studios, 11 minimajors and about 500 small companies (of which only 50 can afford some advertising). Naturally, the goal of most small companies is to grow and prosper, possibly merging with other companies or being acquired by a larger group. But how many of the small companies’ content professionals gathered here in Cannes know what is actually involved in a takeover? VideoAge checked in with three U.K.-based experts. The first, and perhaps most obvious, question is which company does a group want to take over and why? For Jan David Frouman, group managing director at Red Arrow, it is, “First and foremost the people. We look for a leader or other individuals around whom we can build, and it is also very important to us that we work with people who are happy to be a part of the way we operate. Of course,” he added, “creativity is important, and we do want people who are capable of contributing a steady supply of great formats, but we also want people who want to be part of the bigger structure.” At FremantleMedia, chief financial officer Ian Ousey said, “First we would have to be satisfied that the company fit our long-term strategy. We are,” he revealed, “continually analyzing the industry and our place in it, looking at how we see the industry evolving and what, therefore, we have to do in order to position ourselves for growth. Any acquisition would have to fit into this strategy.” At Zodiak, COO Jonny Slow first stressed that, “After several major acquisitions such as Zodiak, Marathon and RDF over the last three to four years, we are not necessarily that focused on acquisitions at the moment.” However, he went on to explain, “If we were, the first thing we would think about is where the company is located. We would look for a market with good ad spend and a good regulatory structure, where producers have a good chance of hanging onto rights. Overall, our goal is to build global production reach and hold onto as many rights as possible.” The ability of a putative takeover to generate cash flow as well as profit is an important factor to all three companies. For Red Arrow, Frouman noted that, “The most common way to put a value on a company is to calculate a multiple of its cash flow.” Interestingly, in light of Slow’s comment, Frouman revealed that, “What the norm is for the multiple used will be determined by the territory in which the company is located.” But he went on to stress that, “The feeling that everyone wants to do this deal is more important to us than money. If a deal is only done for financial reasons, [it] is the road to trouble.” This is also the case for FremantleMedia where Ousey said that, “We would do a f ive- to 10-year business plan, as if that company were in our hands, to determine both its prof itability, and, more importantly, its cash f low.” But he too remarked that, “It is important to understand that we are not speculative investors. While we do have to make a f inancial return on our investment, our primary reason for buying a company will always have to do with the overall business strategy.” Meanwhile, RedArrow’s Slowpointed to “the scale of a company’s operation, both by revenue and the profit made on that revenue,” as well as, “the ability it has demonstrated to hold onto rights, then successfully exploit those rights, and, of course, EBITDA is important, as is the company’s ability to turn profit into cash.” Common to all three companies is the frequency with which takeover deals come out of personal relationships, especially when the two companies have already been working together in some way.Fremantle’sOuseycitedacquisitions such as the Danish production company Blu in 2005, Original Productions from the U.S. in 2009, and last year’s acquisitions of @radical in the U.S. and Ludia in Canada. He pointed out, “These were all companies with which we had had very successful and collaborative partnerships. Working with companies in this way means we have the opportunity to get to know the management team and the company and the way it is run, and decide if we like what we see.” Ousey described this process as “a form of financial dating.” Echoing these thoughts, Slow said, “Generally we like to make an informal approach to companies with which we are already doing business. One good way is through the international sales arm. Sometimes a company puts itself up for sale and we might be approached by a bank, or invited to take part in an auction, and, while I wouldn’t rule out us taking a look at that, we do have a marked preference for the informal approach.” Frouman was also in accord with these sentiments, insisting, “I really prefer sourcing opportunities via referrals. We are very plugged into many markets through our channels and I like to rely on the opinion of people with whom I have worked and whose opinions I trust and value.” There are many other commonalities as well. All three companies dislike joint ventures (JVs), having a marked preference for acquisition. And, in all three cases this is because they see JVs as having an inherently limited life. The general attitude was summed up by Slow, who commented, “I am not keen on JVs, these tend to occur when two or more partners come together because they want to create something to which each can bring a unique contribution. And, for this reason alone, they tend to be, almost by definition, short lived entities.” Another view of takeovers common to all three interviewees was an insistence on a majority stake, and all three were keen that the principals of the company being bought should have an incentive to remain with the group. Both Frouman and Ousey suggested that an initial majority stake with further share purchases along the line at higher prices determined by performance was a preferred method of achieving this, while Slow expressed “a preference for 100 percent ownership.” But he sought to create the required incentive by, “making part of the payment in Zodiak Group shares.” The Art of the Takeover. JVs Are Not Favored E B I T D A F e v e r FremantleMedia’s Ian Ousey Red Arrow’s Jan David Frouman Zodiak’s Jonny Slow
RkJQdWJsaXNoZXIy MTI4OTA5