Ebiquity Regulatory News (EBQ)

3 Aug 2005 07:02

Thomson Intermedia PLC03 August 2005 3 August 2005 NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, DIRECTLY ORINDIRECTLY, IN OR INTO THE UNITED STATES, JAPAN, AUSTRALIA OR THE REPUBLIC OFIRELAND Thomson Intermedia PLC - ('Thomson Intermedia' or the 'Company') THOMSON INTERMEDIA TO ACQUIRE BILLETTS Thomson Intermedia, a leading provider of media intelligence, proposes toacquire BCMG Limited ('Billetts'), a UK market leader in media and marketingperformance consulting for a maximum consideration of £13.1 million. Consideration and funding Consideration is payable in two parts: • £7.5 million initial payment - £6.7 million in cash and £0.8 millionin new shares • Up to a maximum of £5.6 million in earn-out consideration in loannotes - subject to profit targets being met in the financial years ending 30April 2006 and 30 April 2007. The upfront cash payment of £6.7 million is being funded through existing cashresources, a new banking facility and a Vendor Placing, by Robert W. BairdLimited, of 2,142,858 new Ordinary Shares at a Placing Price of 210p raising£4.5 million. The Placing Price of 210p represents a 8 per cent. premium toyesterday's closing mid price of 195p. Due to the high level of institutional demand for the Company's shares, SarahJane Thomson and Stephen Mark Thomson (joint Chief Executives and foundingshareholders) have agreed to sell down 2,000,000 Ordinary Shares at the PlacingPrice, representing 6.4 per cent. of the enlarged issued share capital, subjectto the Acquisition, thereby increasing the size of the overall placing to £8.7million. Following this transaction Sarah Jane Thomson and Stephen Mark Thomsonwill hold 35.0 per cent. of the enlarged issued share capital. Benefits of the acquisition • Considerably accelerates Thomson Intermedia's strategic aim ofbecoming the leading UK provider of advertising and media transparency andintelligence • Enables Thomson Intermedia to marry its data and technology withBilletts' media consulting skills to move the enlarged Company into a unique andpowerful position in both the UK and global market place. • Provides enlarged Group with numerous complimentary services andproducts • Increases the customer base and extends international reach • Provide significant cross selling opportunities • Provides a US subsidiary with significant growth opportunities • The acquisition will be earnings enhancing in year one The combined ambition is to provide a complete, one-stop suite of advertising,media and marketing accountability products (vouching, competitive monitoring,media performance management and ROI analysis) delivered directly to the desktopand in person by media experts. Background on Billetts Billetts is a UK market leader in media and marketing consulting; offeringclients means to monitor and improve the efficiency and effectiveness of theiradvertising and other marketing spend. Analysis of marketing expenditure allowscompanies to better ensure appropriate returns on their investment inadvertising spend. Sarah Jane Thomson, Joint Chief Executive Officer of Thomson Intermedia, said: "This earnings enhancing acquisition is a major step forward in theimplementation of our strategy to provide transparency to the advertising andmedia markets. Our aim is to establish our systems within all marketingdepartments as a fundamental analysis tool in their quest to maximise andmonitor every pound they spend. "Billetts is a well-established media auditing business which will accelerateour rate of growth as the enlarged group will also have numerous cross-sellingopportunities based on a wider complementary suite of products. "We are particularly delighted by the response from fund managers to theacquisition and our growth strategy and are pleased to have a number of newinstitutional investors supporting the Placing." John Billett, Chairman of Billetts, commented: "My colleagues and I are looking forward to joining the Thomson Intermedia teamand providing a wider range of products and services for our clients. As partof an enlarged Group, we will have access to the necessary resources to grow thebusinesses faster." The Acquisition is subject to shareholders approving an increase in theCompany's borrowing powers at the Extraordinary General Meeting. A noticeconvening the Extraordinary General Meeting is being sent to shareholders and anextract from this circular is included below. A copy of the circular isavailable, from the Company's registered offices 1 Westmoreland Road, Bromley,Kent, BR2 0TB. Enquiries: Thomson IntermediaSarah Jane Thomson, Chief Executive 020 8466 2906David Trendle, Finance Director Robert W. BairdShaun Dobson/Adrian Hadden/David Rae 020 7488 1212 College HillAdrian Duffield/Clare Warren 020 7457 2815/2055 Extract from the Chairman's letter to shareholders Proposed Acquisition of BCMG Limited and notice of Extraordinary General Meetingto increase the Company's borrowing powers Introduction Your Board announced today that Thomson Intermedia proposes to acquire Billetts,a UK market leader in media and marketing performance consulting, for a maximumconsideration of £13.1 million, consisting of consideration payable oncompletion of the Acquisition of £7.5 million, of which £6.7 million will be incash and £0.8 million will be in Consideration Shares, and subsequent potentialearn-out payments subject to Billetts achieving certain profit targets in thefinancial years ending 30 April 2006 and 30 April 2007. The Acquisition willfurther the Group's strategic aim of becoming the leading UK provider ofadvertising and media intelligence. Further details of the Acquisition are setout below. The Acquisition is to be funded through the combination of existing cashresources, the New Banking Facility and the Vendor Placing. The New BankingFacility is to be provided by Bank of Scotland, subject to approval byShareholders to an increase in the Company's borrowing powers under its Articlesof Association at the Extraordinary General Meeting to be held on Monday 22August 2005 ("the Proposal"). Information on Billetts Background Billetts is a UK market leader in media and marketing consulting; offeringclients means to monitor and improve the efficiency and effectiveness of theiradvertising and other marketing spend. In 2004, Billetts and the network ofoverseas companies with which it works advised upon the performance of clients'advertising expenditure representing approximately 42 per cent. of the top 500TV advertisers' spend in the UK, as well as, three of the top ten USadvertisers. Analysis of marketing expenditure allows companies to better ensure appropriatereturns on their investment in advertising spend. The analysis spans thewidening spectrum of communication and evaluates the optimisation of theallocation of funds, cost effectiveness of marketing spend and internationallyaccepted best practices. Billetts employs experienced consultants who provideclients with this analysis. Billetts operates through two core divisions; Billetts Marketing Sciences andBilletts Media Consulting. Billetts Marketing Sciences Billetts Marketing Sciences operates as a traditional consultancy, offeringmarketing performance management. By optimising payback and the allocation of marketing spend acrossdifferent geographies, brands and medias, clients are better able to achievemaximum return on investment. This division draws on advanced analyticaltechniques, marketing experience, benchmarks and tools to deliver improved andfact based marketing strategies. This division has experienced significantgrowth following investment in senior staff in 2003, and the Directors believethat this growth is likely to continue with the increasing importance of returnon investment and transparency in the marketing arena. Billetts Media Consulting Billetts Media Consulting works for advertisers to benchmark media prices,quality and "value for money" through the use of proprietary tools. Individualmedia channels are tracked to note changing trends in the local tradingenvironment and the emergence of new media channels. Through this, comparabilitycan be established and areas of strength and weakness can be identified andimproved. The division boasts a strong market position, working with 46 of thetop 100 advertisers in the UK in the past twelve months. The division hasexperienced rapid growth in pan-regional assignments, having built uprelationships with a network of overseas companies. Billetts America Billetts America is Billetts' majority owned subsidiary based in New York. Thesubsidiary, which was recently incorporated, was set-up to introduce mediaperformance management to US advertisers, which is a relatively new concept inthe US. Billetts America has seen its services well received by clients and hasbuilt up a revenue stream from a number of US advertisers. The Directors believe that there is significant growth potential in Europe andNorth America and Billetts' international relationships make it attractive toglobal brand names, with several large, worldwide mandates having recently beenwon. Business model Billetts' commitment to providing a first-class service to its clients hasresulted in a high retention rate and allowed them to build a large portfolio ofblue chip clients, including such brand names as American Express, Cadbury,Canon, COI, Nissan, RHM, RBS Group, Sony, Tesco and Twentieth Century Fox. Billetts' senior management team Billetts' experienced management team comprises advertising, media planning,buying and marketing professionals. The senior management will all remain withBilletts following the Acquisition. John Billett, Chairman Chairman and founder of Billetts. John has over 35 years of media experience.First, in major advertising agencies where he was media director of two top 10UK agencies and then later as an independent planning and buying business in the1980s. He floated CIA Group Plc, which later was renamed as Tempus Group Plc,with Chris Ingram on the London Stock Exchange in 1989. John founded Billetts in1995 and was awarded the prestigious title of Media Maven by Advertising Age inthe US in 2004. David Bridges, Chief Executive, Billetts Marketing Sciences Chief Executive of Billetts Marketing Sciences, leading the UK consumer businessteam and European sales and marketing strategy practice. He has worked with awide range of blue-chip organisations to help them improve performance in thesales and marketing arena. Previously, David spent six years in line marketingand sales roles in the retail division of Shell UK Limited. Andy Pearch, Chief Executive, Billetts Media Consulting Chief Executive of Billetts Media Consulting. He has ultimate responsibility forcustomer media service to Billetts' customer base. A founding member ofBilletts, he has been operating in the media performance management field for 10years. Andy spent five years in media agencies, at CIA Group Plc as media grouphead and as a senior TV buyer at Zenith Optimedia. PJ Leary, Chief Operating Officer, Billetts America Chief Operating Officer of Billetts America and has over 17 years' mediaexperience gained exclusively in the US. Previously Executive Vice Presidentwith Lowe & Partners Worldwide and media director at Young & Rubicam Brands. Rory Park, Billetts Finance Director Qualified as a Chartered Accountant with PKF (UK) LLP in London and has over 12years experience in the media industry with United News & Media and Billetts. Background to and reasons for the Acquisition As part of Thomson Intermedia's growth plans, the Directors undertook a thoroughreview of the media auditing market. The review included due diligence on thekey UK media auditing businesses, including Billetts, with a view to possiblymaking an acquisition. Following the review, the Directors decided that anacquisition of a well established media auditing business would enhance ThomsonIntermedia's growth and therefore be in the interests of shareholders. TheDirectors believe, for the reasons set out below, that Billetts is the mostsuitable acquisition candidate: 1. Billetts is a profitable growth business; 2. Billetts is highly regarded in the media auditing industry; 3. Billetts is the largest media audit company in the UK (by turnover) and hassignificant international presence; 4. Billetts brings considerable media consulting skills, an area where ThomsonIntermedia is currently under represented; and 5. Billetts has a strong and experienced senior management team. The Acquisition will enable Thomson Intermedia to marry its data and technologywith Billetts' media consulting skills, which, in the Directors opinion, willmove Thomson Intermedia into a unique and powerful position in both the UK andthe global market place. The Directors believe that Thomson Intermedia'sadvanced systems and data capabilities represent significant barriers to entryfor competition. This should allow Thomson Intermedia time to integrate the twobusinesses and properly leverage its data and technology on the enlarged clientbase. The Acquisition itself will also be immediately earnings enhancing forThomson Intermedia. Billetts' historical financial performance Set out below is an extract from Billetts' audited financial information for thethree financial years ending 30 April 2005. For illustrative purposes only, theadjusting items relating to the Acquisition have been included to show theunderlying profitability of Billetts. Year ended 30 April 2003 2004 2005 Turnover 5,718 6,393 7,636 Administrative expenses (4,818) (5,338) (6,603) Adjusted EBITDA 900 1,055 1,033 Margin 15.7% 16.5% 13.5% - Amortisation (75) (75) (75) - Depreciation (147) (146) (106) Adjusted EBIT 678 834 852 Margin 11.9% 13.0% 11.2% - Interest (28) (24) (50) Adjusted profit before tax 650 810 802 Margin 11.4% 12.7% 10.5% - Non-recurring fees (Note 1) (162) (108) (289) - Investment in new business (Note 2) (126) (650) (189) Audited profit before tax 362 52 324 Notes: 1 these figures include, inter alia, one off advisory fees, bonuses and non-executive director fees 2 these figures include, inter alia, costs relating to the start-up of Balaia's US operations Details of the Acquisition and financing arrangement The maximum consideration for Billetts is £13.1 million comprising initialconsideration payable at completion of £7.5 million with further potentialearn-out payments of up to a maximum of £5.6 million. The maximum considerationis subject to a net debt/cash and working capital adjustment, which will befinalised following the completion of the Acquisition. The earn-out payments are based on a multiple of EBIT achieved above the targetEBIT numbers, and are subject to a cap. The initial consideration will consist of 403,153 Consideration Shares, with acombined value of £0.8 million and £6.7 million in cash. The cash considerationwill be funded through the Vendor Placing of £4.5 million, the New BankingFacility together with existing cash balances of Thomson Intermedia. Theearn-out consideration will be paid in loan notes. The Vendors have each undertaken (save in limited circumstances) not to disposeof any Consideration Shares for a period of 18 months from Admission save forJohn Billett (and trustees of his pension fund) who has undertaken (save inlimited circumstances) not to dispose of any Consideration Shares for a periodof 12 months from Admission and not more than 50 per cent. of his ConsiderationShares in the period of 12 to 24 months from Admission. Thomson Intermedia will finance the cash consideration from existing cashbalances, a Vendor Placing and the New Banking Facility. Pursuant to the termsof the Vendor Placing Agreement, Baird have fully underwritten the VendorPlacing, subject to the Vendor Placing Agreement not being terminated andbecoming unconditional including, inter alia, the Sale and Purchase Agreementbecoming wholly unconditional and Admission. Given strong institutional demand in relation to the Vendor Placing, Stephen andSarah-Jane Thomson have agreed to sell down 2,000,000 Ordinary Shares at thePlacing Price conditional on the Acquisition. New Ordinary Shares Application will be made to the London Stock Exchange for 2,546,011 New OrdinaryShares, pursuant to the Acquisition and the Vendor Placing Agreement, to beadmitted to trading on AiM. It is expected that Admission will become effectiveand dealings in the New Ordinary Shares will commence on Tuesday 23 August 2005. Extraordinary General Meeting Thomson Intermedia is proposing to fund part of the consideration for theAcquisition from the New Banking Facility. The New Banking Facility isconditional, inter alia, on the Company sanctioning higher borrowing powersunder its Articles of Association. The existing Articles of Association provide that without the previous sanctionof the Company in a general meeting the maximum amount which the Company (andits subsidiaries) can borrow shall not exceed an amount equal to four times theAdjusted Share Capital and Reserves (as defined in the Articles of Association).Given that the Company has incurred losses until recently (which adverselyaffects the calculation) this means that it is not able to borrow more thanapproximately £0.5 million. Consequently, your Board is proposing the Resolutionat the Extraordinary General Meeting to sanction a change in the borrowingpowers so that the Group can borrow the greater of £12 million and an amountequal to four times the Adjusted Share Capital and Reserves (as defined in theArticles of Association). Recommendation Your Board believes that the Proposal is in the best interests of the Companyand Shareholders as a whole. Accordingly, your Board unanimously recommend thatShareholders vote in favour of the Resolution to be proposed at theExtraordinary General Meeting as they have irrevocably undertaken to do inrespect of their own beneficial and connected shareholdings, which amount to14,065,114 Ordinary Shares representing approximately 48.9 per cent. of theissued share capital of the Company. John Napier Chairman This information is provided by RNS The company news service from the London Stock Exchange