Media group UBM (UBM) ticks up 0.6% to 713.5p as it announces the acquisition of privately owned Asian exhibitions portfolio Allword Exhibitions for $485m.
EVENTS FIRST
This is the latest step in an ‘Events First’ strategy which has focused the business on the traditionally high margin and cash generative events space.
The deal is expected to be immediately earnings enhancing and will be funded by debt, however the price tag looks on the high side at 12.9 times historic earnings.
Liberum, which has a 'buy' recommendation and 800p price target on the stock, highlights three reasons the deal makes sense, even at this premium price.
PRICE WORTH PAYING
‘Allworld is a very good asset at first sight - its average organic revenue CAGR has been 7.3% over the past ten years, with slightly lower growth in the past few years due to space constraints, which should be alleviated with the deal. It has high margins (39% for FY to June 2016 and an expected 35% for 2017E). 90% of the revenues come from 28 shows, thus fitting in with UBM's commitment to increasing the exposure to higher-quality, larger shows;
‘It improves UBM as a whole - management estimates the deal will add 40bps to 50bps to UBM's overall organic revenue growth and there are a number of obvious areas for cross-promoting opportunities (geo-cloning, better use of exhibition space etc). It does not, though, significantly change the geographical mix of revenues (North America goes from 43% to 39% and the Emerging Markets / China / Hong Kong goes from 36% to 40%);
‘Geographically, the deal strengthens UBM's position in the ASEAN markets and, product-wise, it strengthens its position in the Food and Hospitality spaces, thus broadening its product mix and lessening the exposure to Fashion and Jewellery.’
