Description

Mediawan is building up through acquisitions a French content platform perhaps akin to Lionsgate.  It plans to benefit from an acceleration in demand for content, notably from streaming players like Netflix and Amazon, but also possibly from traditional players like Altice/SFR as the content war in French telecom heats up.

Mediawan was founded as a SPAC in December 2015 (as the first ever SPAC in France, actually), backed by Iliad founder Xavier Niel.  If you haven’t heard of Niel – he is a fascinating man and worth reading up on (http://www.nytimes.com/2013/05/06/business/global/xavier-niel-billionaire-who-breaks-the-mold.html).  He is the founder of the French telco Iliad and owns 51%, which is a stake worth €7 bn.  While his stake in Mediawan, at only €21 mm, is very small relative to his net worth, his backing is important in providing credibility and attracting talent.  Xavier sits on the board.  There are other links to Iliad as well; Orla Noonan, the CEO of Groupe AB (Mediawan’s main operating subsidiary), sits on the board of Iliad.

In addition to Xavier, Mediawan is also backed by Matthieu Pigasse, the Global Head of M&A at Lazard and CEO of Lazard France.  Mediawan is run day-to-day by Pierre-Antoine Capton.

In April 2016, Mediawan raised €250 mm in a private placement and listed itself on the Euronext Paris exchange.  The stock trades as MDW FP and the SPAC warrants trade as ticker MDWBS FP (warrants are discussed in the valuation section below). 

Despite doing a transformative deal (Groupe AB) that closed in March 2017, Mediawan trades below its IPO price of €10.  This sets up an interesting opportunity.

Groupe AB

In March 2017, Mediawan closed the acquisition of Groupe AB.  Groupe AB in 2016 generated revenues of €160 mm and EBITDA of €37 mm. 

Groupe AB is vertically integrated along the content value chain: it produces content, distributes (i.e. sells) it, and operates 19 TV channels that showcase its content.  On the surface, “production & distribution” is 1/3 of revenue and “channels & digital” are 2/3 of revenue; after adjusting for inter-company sales, the true split of revenues is closer to 50/50.  On an EBITDA basis, “production & distribution” represents about 70% of EBITDA.

Groupe AB has relatively low exposure to advertising.  Advertising is only 20% of “Channels & Digital” revenue or 13% of total revenue.  Instead, most of its revenues on the Channels & Digital side come from fixed carriage fees paid by telco operators. 

Groupe AB has a content library of 12,000 hours.  Examples of its content are: Friends in French; Black Spot (a dark mystery, currently airing); Alice Nevers (the continuation of a judge franchise); the animated series Miraculous that was sold to Netflix; etc.  In terms of origin the library is split (by hours) 44% in-house production, 41% acquired rights, 15% rights under mandate (created on behalf of a third party).  By genre, the library is split 60% TV series and sitcoms, 14% documentaries, 14% films, and 12% animation.

Thesis

Groupe AB’s value proposition is that is an independent actor at a time when demand for content is secularly increasing from many sides.  Groupe AB can sell to anyone (FTA channel like TF1, telco operator, Canal+, Netflix, Amazon, etc.), anywhere (20% of distribution revenue is international i.e. outside France).  OTT is of course a big theme; Mediawan management thinks that sales to OTT could be 50% of revenue in 5 years.

Groupe AB is also an aggregator of content from smaller producers who don’t have distribution capability.  They do this both through license and acquisition.  Mediawan management argues that small independent creators want to work with an independent aggregator like Mediawan rather than aligning themselves exclusively with one player like a Netflix. 

Groupe AB is just the start; Mediawan is a natural consolidator of the very fragmented European media space.  Post-acquisition, they can leverage their distribution and relationships to expand sales of the content they acquire.  Mediawan management says they are seeing many opportunities but have been disciplined about not overpaying – thus passing on multiple deals that would have fit well except for valuation.

Valuation

At the current price, Mediawan trades at 8x EBITDA (this is not accounting for the 12.5 mm of share-equivalent warrants; if you assume they are taken out at €18 for €6.50 per warrant (18.00-11.50 strike), and treat that resulting €81 mm redemption price as debt, Mediawan would trade at 10x EBITDA – however in that scenario you have already made quite a bit of money vs. today).  On a FCF basis, I estimate that Mediawan trades at ~11x levered FCF (again, before warrants) – a fairly cheap price that doesn’t bake in any value for future acquisitions.  You are not really paying for the potential growth from OTT demand for content.

The warrants, MDWBS, trade for €0.30 each and two are needed to convert into each share; thus, one share-equivalent warrant is effectively trading for €0.60 with a strike price of €11.50, expiring in 2022.  Mediawan currently trades at €9.66 so there is some distance to go before the warrant is in the money – however, there is a lot of leverage on the upside.  The warrants are able to be redeemed by the company when the stock reaches €18 so maximum upside is €6.50 for a price of €0.60 today.

 Disclaimer: This memorandum is for discussion purposes only and is not intended to be, nor should it be construed or used as, financial, legal, tax or investment advice or a general solicitation.  This memorandum is as of the date posted, is not complete and is subject to change. The data contained herein are prepared by the author from publicly available sources and the author's independent research and estimates. Certain information has been provided by sources believed to be reliable, but has not been independently verified and its accuracy or completeness cannot be guaranteed and should not be relied upon as such.

Catalyst

Time, more acquisitions