UBM is, on the face of it, paying a chunky price for becoming the No 1 events business in the British market. The purchase of Advanstar will mean about 42 per cent of its events business will come from the United States, where about 42 per cent of the world exhibitions industry is situated.
Job done, then, for a company that indicated in the summer that it was under-represented in North America, as opposed to the emerging markets in places such as southeast Asia that have tended to provide the growth in recent years for quoted exhibition companies.
UBM, though, is paying $972 million to buy Advanstar from the hedge fund and private equity companies that own it. This is equivalent to 4.5 times revenues, or about 12 times earnings before interest, tax and other one-offs.
The deal could hardly be seen as cheap, but there are factors that reduce that hefty multiple. First, it is a historic figure, and the multiple for 2014 is more likely to look like ten times earnings plus.
Second, there is a tax advantage. UBM has sheltered tax losses in North America, and these can be offset against the purchase price. The company was not being entirely clear, but Advanstar, under its ownership, is not likely to pay much in tax over the next few years.
Exhibitions are volatile businesses, often the first corporate cost cuts when the economy turns down. More than half the business, though, is in fashion, not as in Planet Fashion but regular events where suppliers of merchandise meet the retailers, a stable enough business.
Advanstar was bought on a high multiple before the downturn and then loaded with debt. Now turned around, it was ripe for sale. UBM, the most obvious buyer, had the choice of paying up or walking away and taking years to build the US to where it wants it to be.
Details of the £563 million rights issue to fund the deal will not be known until next month. The deal has been struck, though, so it does not require the sale of UBM’s PR Newswire operation, which is widely seen as non-core. The shares. off 34½p at 548½p, sell on about 12 times earnings. This is an attractive multiple, but it is still a gamble on the deal paying off.
Price for Advanstar $972m
12 times Earnings multiple paid for Advanstar
My advice Cautious hold
Why Detail of rights not yet known. Purchase price is a hefty on, though this is a once in a decade opportunity to expand in the United States
Findel is a retail holding company containing some widely differing businesses, one of which is the old Kleeneze household goods seller that many old stock market hands may remember, not always fondly.
More promising, these days, is its Kitbag offshoot, which acts as a retail partner for sporting events and has just handled the onsite selling for the Ryder Cup. Kitbag is moving further into physical retail, rather than online, and into non-sports areas potentially. This will require investment, and Findel has raised the prospect of a sale instead.
Such a change for Kleeneze is not in prospect, alas. The company suffered a 24 per cent decline in sales in the half to September 26, though this is not as serious as it sounds because costs, in terms of payments to distributors will have come down proportionately.
The education supplies business is treading water, given the upheavals in funding for schools, and sales were down by 5 per cent. The heart of the group is Express Gifts, which provides home and garden items by catalogue. This increased sales by 6 per cent and added to its customer base, and as a result Findel, which traditionally has a much stronger second half because of the Christmas trade, will announce an unaccustomed first-half profit this year.
The shares, off 6¼p at 235¾p, sell on a modest earnings multiple of 8.5, but one suspects that further advances will require positive news on Kitbag. Findel is, however, an evolving story and still has some way to go.
Peak debt level £224m
My advice Hold long term
Why Findel still has work to do to get where it wants to be
That US purchase by UBM is only the largest in a handful of deals done by UK corporates so far this week. One survey suggests that M&A in Europe is already, nine months into the year, surpassing the level seen in all of last year.
While the flow of IPOs will inevitably turn down as the election nears, the supply reduces and sellers become more cautious, corporates are stuffed with cash and see no reason not to spend it on global deals because of domestic political issues.
This will benefit medium-sized brokers such as Numis Corporation, which has done rather well out of the IPO boom. Numis last month picked up the mandate to act for Micro Focus on its $2.3 billion merger with Attachmate of the US.
The broker is hiring experienced M&A bankers. It raised the number of corporate clients by 15 to 171 during the year to the end of September. Revenues were up 19 per cent, though the second half did not match the same period last year.
Numis is a reliable payer of dividends, as its staff, with half the shares, will be aware. Profit forecasts are meaningless, but the yield on them, off 21¾p at 244p, is in the 4 per cent area.
Full-year revenue rise 19%
My advice Hold
Why Yield is attractive, if profits hard to forecast
And finally...
Another deal comes along, this time by Cohort. The technology group sold its troubled space division to Thales in the summer, and moved to expand its defence side with the purchase of Marlborough Communications. It is now buying J+S, again in its core area of sonar systems and other marine equipment, and is a supplier to the Royal Navy. The order book is running at about £33 million. Both deals add to earnings immediately and, given Cohort’s strong cash position, others are promised.
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