Entertainment One (eOne) has announced the acquisition of Audio Network for £165m (cash-free, debt-free basis) alongside a share placing at 450p to raise c £130m. Audio Network’s business model meshes very neatly with eOne’s, adding both music resource and a substantial recurring revenue base while giving the group’s existing artists and catalogue new revenue-generating opportunities. The purchase price represents 15x LTM reported EBITDA and management indicates the deal would be earnings enhancing in its first year (FY20).
Audio Network is a large, UK-based global independent creator and publisher of music, with revenue of £29m (Y/E June 2018) and a 35% EBITDA margin. It has a diverse client base: film and television clients such as the BBC and Netflix, major advertising agencies, corporates (including CocaCola and Google) and digital media companies. Its revenues split roughly 50:50 between upfront sync fees and publishing, with publishing royalties equally divided between the company and the originating artists and composers. Beyond the attractions of Audio Network’s rights management platform, catalogue and client base, the combination with eOne’s existing business should deliver good revenue synergies. Its artist roster will benefit from being added to the Audio Network offering and eOne will save on third-party costs by using Audio Network as first port of call for music for in-house productions.
Music is an attractive asset and recent transactions have been at higher multiples. Audio Network’s management was attracted by eOne’s independent industry positioning and is staying with the business (bar one person, who is retiring). The balance of the purchase price is to be funded by a two-year senior secured loan note of £52m and by some management vendors rolling over into eOne shares. Management anticipates the deal will be accretive to earnings in its first year.