Interactive Investor

ITV buys The Voice

18th March 2015 10:46

Lee Wild from interactive investor

Broadcaster ITV is on the acquisition trail. After a spectacular year, driven by the success of shows like Downton Abbey and last summer's football World Cup in Brazil, the company has agreed to buy Netherlands-based Talpa Media for up to €1.1 billion (£781 million).

Talpa, set up by Big Brother creator John de Mol, makes entertainment shows and a number of worldwide hit formats, including The Voice which generates about a third of sales. This purchase is part of ITV's strategy of building an international content business that creates and owns entertainment formats and dramas that sell internationally.

And Talpa has been prolific. In six years the company has created 75 shows which have aired in more than 180 countries. Last year, it made an underlying operating profit of €61 million on revenue of €233 million. Assuming regulatory approval is a formality, the deal should close during the second quarter of 2015 and be earnings accretive from day one, perhaps by as much as 3% on pro forma basis.

Crucially, de Mol and the rest of his senior management team will remain heavily involved in the business. ITV will first pay €500 million in cash - revenue and earnings multiples of 2.1 times and 8.1 times respectively - but could end up shelling out more than twice that amount if Talpa delivers "significant profit growth" over an eight year period. That figure is also contingent on de Mol's continued commitment to the business in that time. Pay the full amount and the multiples increase to 4.7 times historic sales and 18 times earnings.

"Great content is at the heart of ITV's growth strategy and the acquisition of Talpa builds on the success of our international content business and is absolutely in line with our desire to create and own formats that travel," said ITV chief Adam Crozier. "John de Mol and his team have an incredible track record of doing that consistently over many years and I'm delighted to welcome them to the ITV family. This is a great opportunity for ITV to accelerate its progress in building a global content business of scale."

Trevor Green, Head of Institutional Equities at Aviva Investors and among ITV's major shareholders, backs the deal. "Reassuringly, the deal is structured to strongly incentivise the Talpa management with the Founder John de Mol locked in for eight years. In the space of eight days, ITV have been able to announce a special dividend and an attractive acquisition paid out of internal cash resources. This highlights the health and dynamism of the company."

Roddy Davidson, an analyst at Westhouse Securities, agrees. "We are pleased with this acquisition which is ITV's largest deal in the content space by some measure and will significantly kick on the process of reducing advertising exposure and driving international reach - both of which are important from an earnings quality and medium-term rating perspective."

"We will review our forecasts and target price in response, but for the time being remain of the view that the group's current valuation (16.4x / 2.3% FY2015E P/E and dividend yield ratios respectively) looks attractive."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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