Member Info for 1GW_

Did Bob negotiate the deal, do you think? How many other jobs did he have at the time?

It's not about being clever, it's about managing risk and understanding where it lies. The Vocare sellers cashed out - they managed to get the cash out of the business and leave the business with someone (Tly) who wanted to make it work. They derisked their personal positions. And tly took the other side of that risk equation.

Being brushing up on your creative accounting there graham-wales? In which line of the tly accounts will we be able to see that reduction in acquisition cost?

The Vocare acquisition accounting is quite informative.

(£2.3m) Net liabilities acquired
£15.2m Goodwill
£ 4.6m Value of contracts
£17.5m Total consideration

So Tly paid £17.5m for a company that had net liabilities, before intangibles.

Total consideration satisfied by:
£12.7m Cash
£ 3.5m Ordinary shares issued
£ 1.7m Contingent consideration
£(0.4)m Consideration refunded after period end

So only about 10% of the consideration was contingent and most of the consideration was cash. The shares were valued at 47.9p/share because that was the share price on the transaction completion date.

If you then look at the cashflow analysis they show:
£12.7m cash consideration
£(11.8)m cash balances acquired
£0.9m Net outflow of cash

So there wasn't much cash out from Tly, but what they were doing was allowing the Vocare sellers to take all the cash (and a bit more) out of the Vocare business, leaving the debt (trade & other payables) with tly.

Looks to me like the Vocare sellers knew exactly what they were doing. Not very charitable towards tly at all.

All of which wouldn't matter so much if tly could turn it round quickly and start earning a decent margin on the revenues. But that's where the doubt is, isn't it?

I spoke to Wendy directly about the Harrisons and the likelihood of them wanting to sell out at the then-prevailing prices at the AGM - that's what I base my "change of facts" sales today on. I have sold down meaningfully but am not out.

Does anyone really think it likely that the Harrisons don't stay in touch with people high up in the Vocare part of the business or don't have a very good idea of how the Vocare business is doing? And when deciding the extent to which the brothers saw the business as being for charitable purposes (rather than just structured as a not-for-profit company) you might want to compare the highest paid director's pay disclosed in the Vocare accounts with that of Wendy at Tly.

But if we look at tly institutional behaviour since the placing in 2017, just as a reminder, ahead of any further TR-1's which may come for purchases related to the Harrisons sales, there's a huge weighting towards sellers rather than buyers. Now 1 or 2 might be special circumstances forcing a sale, but so many? And how many of them still want or need to reduce? If my records are correct, including the "unchanged" and the sole recent institutional buyer Ameriprise, we have:

Lombard Odier (ex-Henderson)
5.4m shares after placing
2.8m shares as of July 2018
<3% as of September 2018

Killik & Co
3.3m shares after placing
3.6m peak declared position as of May 2018
2.9m shares as of January 2019

Miton
5.3m shares after placing
5.5m shares peak declared position as of October 2017
2.1m shares as of June 2018
<3% as of September 2018

Canaccord (Hargreave Hale)
2.7m shares after placing
2.2m shares as of September 2017
<3% as of June 2018 (website)

Legal & General
4.9m shares after placing
4.6m shares as of October 2018

Schroders
2.2m shares after placing
<3% as of June 2018 (website)

Royal London
2.8m shares after placing
No change declared

Unicorn
5.8m shares before placing
No change declared

Seneca Partners
3.4m shares before placing
No change declared

Ameriprise (Colombia Threadneedle)
2.8m shares after placing
3.3m shares as of November 2018

And yes, before anyone gets upset at the omission, we also have the Newlands as private investors who declared in July 2018 and have been steadily increasing since then.

So you're playing the arb as well brassneck. What will stt1 make of that? I do think the risk profile is different from R1-YuMe though. There, selling R1 to buy Yume seemed low risk to me (provided I intended to keep the shares through to completion or abandonment of the deal) since if the deal fell through it seemed most likely to do so because of a counter-bidder for YuMe, which would have been upside on the arb trade. Here though, even though I released capital by selling R1 and buying Tap, I view it as higher risk because of the chance of a counter-bid for R1. That presumably is why the arb works - the market assigning a small probability to counter-bid which offsets the risk of deal failure for other reasons.

Sellers of Vocare bail at 12.5p, selling nearly 10% of tly, and the company doesn't even state in the rns that trading remains in line with their expectations. How can that be good news for tly shareholders?

You fully accept the idea in my post? Glad to hear it. Look forward to hearing your questions to R1 and their responses.

Here's an idea stt1. Buy a share, come to the March GM and ask someone from the company as many questions as you would like to. Then you can report back on the answers you get. And as an added bonus you might learn something about brassneck's existence which might cause you to re-evaluate your powers of deduction.

Not for the first time stt1, you simply demonstrate a complete lack of understanding of the accounts, or you are out to wind up holders, or most probably a bit of both.

The Fy16 annual report is very clear. They were holding goodwill against a number of cash generating units, or CGUs, relating to their acquisition:

$25m Burst
$24m Rhythm NewMedia
$2m LYFE
$2m All Media Network

These 4 CGUs were combined into the RhythmOne CGU. When they reviewed the goodwill they decided they needed to take an impairment charge of $32m, reducing the combined goodwill from $53m on the 4 CGUs to $21m on the new RhythmOne CGU.

In addition they had the following goodwill against other CGUs, also from acquisitions:
$2m bllinkx
$22m PVMG
$10m AdKarma

PVMG they wrote down by $16m to $6m
blinkx goodwill they wrote off completely
AdKarma goodwill was not written down

So they consolidated 4 CGUs into the 1 RhythmOne CGU and left 3 more outside, of which PVMG and AdKarma were the material ones. Total writedown of goodwill $50m. PVMG was subsequently sold and during FY17 AdKarma was consolidated into the RhythmOne CGU (with its goodwill being reclassified to the RhythmOne CGU without writedown).

Suggest you look at note 12 to the FY16 annual report if you still don't understand.

There you go then stt1. Buy 1 share in either R1 or Tap and you can meet both brassneck and me at either GM.

brassneck - I presume the location of the R1 GM will be defined in the Scheme Circular due out a week on Monday.

Looking forward to the double-header. Tap EGM on the Thursday, R1 GM on the Friday (21st/22nd March). A good chance to meet and establish which posters belong to which ids?

Thanks brassneck. Personally I'm waiting for our friend with the coloured pencils to draw our attention to what happened to reuters consensus earnings recently. Sparse dataset and all that but can only be a matter of time.

Reuters printout I refer to was on 15th December. The numbers were a bit volatile around then, and on 16th December they were showing $402m revenue and 54c/share (adjusted) earnings.

Funny old world. I had convinced myself that R1 had deliberately not given any guidance with the 1H results.

In fact, reading the Tap circular, I realise I was wrong. Re-reading R1's interim results "Outlook" section, R1 do in fact give a profit forecast, confirming trading in line with market expectations:

"The Company continues to trade in line with consensus forecast revenue and adjusted EBITDA is in line with consensus forecast EBITDA."

The point here being that since this statement is made in the middle of the 2nd half of the financial year (with 1H results published), they can only really be talking about full-year performance forecasts.

So that being the case rule 28 of the takeover code would require them to confirm or retract the profit forecast.

So what was consensus forecast as of 13th December? My printout from reuters shows $408m mean revenue and 51c/share (adjusted) earnings. Other datapoints would be individual brokers notes, although I don't remember seeing any published around 13th December. Does anyone else have sight of such forecasts for revenue and/or adj ebitda?

and R1 GM on 22nd March, before publication of Taptica 2018 results.

Agree with you on preferring to see an institution increasing graham-wales.

IMO what this shareprice desperately needs (in the absence of any data from the company indicating big contract wins or improving financials) is a vote of confidence from an institution. Ameriprise bought some which was a start and if we can see them increasing again or another one buying in/increasing then that will give other shareholding institutions something of an excuse to stay invested themselves.

The declarations should now be in and it's a mixed bag. Good to see that LO have been buying (shouldn't they have been giving daily dealing notices though?), but disappointing to see there aren't more institutions holding under the normal declaration level (5% or 3%). By my records we have the following 1%+ positions:

25.3% Toscafund
12.6% Lombard Odier
9.9% River & Mercantile
5.2% Eric Singer/Viex
1.6% Majedie
1.6% Schroders
1.5% Norges Bank

For a total of about 58%, leaving what looks like a very long tail of 42% or so in the hands of sub-1% institutions and private investors.

Goodwill is only an issue when you can't pass the impairment test. But if they end up with a lot of other intangibles (which would be amortised over several years) then that might be a consideration. But amortization is only a way of spreading the cost of what you're buying. If you don't think it's worth it then you shouldn't be buying the asset in the first place! ie they're going to take the gross margin into the profit numbers so it's only right that they should also take the corresponding cost including the amortization, isn't it?

The goodwill write-offs in FY16 by R1 might carry a bit of a warning for Tap as they think about how to bring R1 onto their own balance sheet post merger. R1 had bought various companies and as a result had a lot of goodwill on the balance sheet. In FY16 they decided to rebrand as RhythmOne and bring everything (or most parts of the company) together. As part of that they had to sit down with the auditors and decide if they could reasonably map the goodwill from the individual CGUs across to a new R1 CGU. The result was a fairly massive writedown of goodwill. If I remember correctly, of course.

Perhaps my last post needs qualifying (for the avoidance of doubt) with the statement that Goodwill isn't amortized of course, but sits around until the relevant CGU (cash-generating unit) fails an impairment test.

R1 has $124m of goodwill on the balance sheet at 30th September 2018
Tap has $33m of goodwill on the balance sheet at 31st December 2017

There does appear to be a material difference between R1 and Tap policies on goodwill in relation to the impairment test. TAP identifies a single CGU (the entire operation) and bases the recoverable amount on the fair value of the shareprice. R1 on the other hand splits its operation into CGUs (RhythmOne, Perk, RadiumOne and YuMe) and tests goodwill in each one against a cashflow forecast.

Tap's goodwill tests sounds easier to pass given the boundary is the whole operation, but I don't think I would try to defend R1's goodwill history, having seen the huge impairment charge in FY16 and the variablility in assumed discount rates from year to year in the cashflow forecasts.

Bott - just to challenge a bit on your comments on the Taptica audit report and the weight of intangibles in the balance sheet.

The length of audit report is I think principally a function of expectations under UK company law vs expectations under Israeli company law isn't it? Isn't there a lot of stuff that needs to be reported on now under UK company law? One criticism I have seen made of UK audits these days is that there's too much box-ticking and not enough focus on the fundamentals of auditing. Both R1 and Taptica prepare accounts in accordance with IFRS and have been audited by professional auditors, as I understand it.

Then on balance sheet, one of the impressive things about Taptica is the improvement in balance sheet quality between end-2017 and end-1H 2018 isn't it? Total assets increase from $175m to $190m, mainly due to an increase in cash & equivalents, while total liabilities decrease from $110m to $84m thanks mainly to a reduction in payables and a reduction in debt (they raised $30m equity in 1H to reduce debt). As a result net assets increase from $65m to $106m and the weight of intangibles drops materially (from $62m out of $65m down to $58m out of $106m).

Admittedly the 1H numbers are unaudited while the end-2017 numbers are audited, but we are due full year numbers on 26th March which I think will be audited numbers (the 2017 audit statement is dated March). So we should be able to see before completion of the merger whether or not cash generation and balance sheet quality improvement has continued.

It is also perhaps worth noting in passing that Taptica's amortisation policy on intangibles appears more conservative than RhythmOne's. As I read their policy they amortise over a maximum of 5 years whereas R1 amortise some things over up to 12 years.