London's AIM lures TV firms from around the world
LONDON — From the successful IPOs of Shed and RDF to December’s hostile takeover of Television Corp., it’s been anything but business as usual for the U.K.’s independent production biz in 2005 as investors finally recognized the sector as a serious business proposition.
Buoyed by new regulations, which shifted ownership of program rights from broadcasters to producers, plus a growing number of outlets for content, companies like “Wife Swap” producer RDF are winning formerly dubious investors.
The big question, though, is whether these relatively small — and traditionally high-risk — outfits can live up to the expectations of a financial community hungry for growth and intolerant of profit warnings.
Both RDF and drama specialist Shed are making the most of their healthy valuations on London’s Alternative Investment Market (Aim), luring new talent with the offer of lucrative share options and using stock to acquire fellow producers.
Since coming to the market in May, RDF has snapped up Scottish indie IWC for £14 million ($24.2 million) and taken full control of joint ventures Touchpaper and Radar, while Shed is paying up to $52 million for Ricochet, producer of “Super Nanny.”
Such acquisitions have pumped up both companies’ share prices, and further consolidation is in the cards as a handful of Blighty’s super indies, including Bob Geldof’s Ten Alps and the privately owned All3Media, seek to build the kind of critical mass that investors would like to see.
And even the advisors are cashing in. Ingenious Media, the media finance boutique that helped Shed to float and brokered its takeover of Ricochet, is itself planning an IPO on Aim within the next couple of months, tipped to value the company at as much as $700 million.
“Until these businesses get bigger they are fragile,” notes Nick Ward, head of media research at stockbroker Panmure Gordon. “But at the same time, the prospect of building a larger business really is there now.”
It’s not just U.K. producers that are cashing in on this newfound interest in the TV biz.
In October Los Angeles-based animation studio Dic Entertainment raised around $30 million when it listed in London, while Germany’s TV Loonland has been listed on Aim since February and Australian producer and distributor Beyond Intl. will follow in a few months.
Although Beyond is already listed on Sydney’s ASX, chief exec Michael Borglund believes its share price is undervalued due to a lack of interest among Australian investors. In London he expects shares to trade at a higher value thanks to a better understanding of the sector. Both Shed and RDF, for example, were valued at some 14-15 times profits when they floated on Aim.
“You’ve got half a dozen companies that are producers and distributors listed on Aim, and that’s created an interest,” he notes. “It’s worthwhile to the brokers to invest some research time in these companies.”
With a growth strategy based on acquisitions, though, there is always a risk that companies will overspend — as TV Loonland knows all too well.
In March 2000 the children’s entertainment outfit listed on Germany’s Neuer Markt and was valued at over $173 million, but after snapping up producers in the U.K. and U.S., it began to hemorrhage red ink and was forced to scale back dramatically.
Not surprisingly, the new management is taking a far more conservative approach to growth now that the company’s share price is picking up again.
“Loonland’s not going to rack up huge debts,” says chief corporate development officer Peter Urie. “We’ve learnt from previous experience not to do that.”
The Neuer Markt was shut down in September 2000, and many Germany investors lost money.
Aim is counting on a safer run.
Owned and operated by the London Stock Exchange but less heavily regulated than the full list or New York’s Nasdaq, Aim is focused on growth stocks, making it ideally suited to independent producers.
“A lot of the unlisted indies are seeing all these companies go to Aim, so they automatically think that’s the market for us because our peer group is there,” says Patrick Yau, an analyst at Bridgewell Securities, which advised Shed on its listing. “Indies are small companies, and Aim is probably the best market for that because they’re alongside companies of a similar market cap.”
For all the benefits of a public listing, however, the market can be a hostile place if the hits stop coming or a company makes the wrong acquisitions, as Television Corp. found to its cost after an ill-fated move into offshore powerboat racing two years ago.
While the Aim-listed company reported its first annual profit for three years in March, its share price has nevertheless plummeted over the past 12 months, and in December, the board was forced to end its opposition to a $62.3 million takeover by tiny Welsh producer Tinopolis.
“If your revenues are volatile or unpredictable, and they’re reliant on either one or two key relationships with broadcasters or key brands, then it’s probably not in your interest or your shareholders’ interest that you list the company,” warns Yau. “If you make a mistake and have to issue a profits warning, the market won’t forget that in a hurry.”
Having said that, he predicts Bridgewell will be bringing more indies to the market in 2006.
“It’s been a pretty good period for us, and obviously we’re looking for the next Shed or the next Dic,” he adds. “Hopefully, we’ve got a couple of those in the pipeline.”