2010.35 Different M&A bidder types; as demonstrated in recent content library-related announcements: Miramax, Lions Gate, MGM, EMI and the Weinstein Company.
A slew of recent media-related deals and announcements has me wondering. Blogs have reported that Colony Capital is teaming up with Ronald Tutor to buy Miramax. While Colony is known as a real estate private equity fund, it started out buying distressed assets during the S&L crash. Richard Nanula, a Colony partner, was Disney’s CFO years ago so he probably grasps studio economics as well as anyone. Also as covered here before, Carl Icahn – known as a corporate raider – is making a run at Lions Gate. Lions Gate is reported to be in talks with MGM about a possible merger. MGM’s debt holders, in turn, reportedly rejected a $1.5 billion bid from Time Warner. EMI’s owner, private equity firm Terra Firma, invested an additional £105 million into EMI to avoid a default on the music company’s debt; if the bankers hadn’t gotten paid they could have taken over EMI. The Weinstein Company recently negotiated a restructuring agreement in which its lenders are relieving it of $450 million in debt and providing new cash in exchange for a $115 million payment from Ambac and the rights to 200 Weinstein movies, including the $233 million in related accounts receivable (Once Goldman and Assured Guaranty recoup their money the film titles will revert to Weinstein).
What do all of these (possible) transactions have in common? All of the related companies have content libraries; their valuations are functions of both legacy assets and in some cases efforts to create new content. Lenders are also having an impact on deal negotiations. Lions Gate and Weinstein’s lenders have been working with them to give them time to address their business issues, while EMI’s lenders (led by Citigroup) have been more aggressive in their willingness to potentially take over the company. In all cases, investors and debt holders are assigning value to libraries of content (music in the case of EMI, film content otherwise).
What they also have in common is that a wide range of buyers is demonstrating interest in these content library-based businesses (potentially including existing debt holders).
So, the using these transactions to illustrate the types of buyers common in M&A transactions and depending on circumstances:
Strategic buyers: Strategic buyers are essentially other corporations, most typically in the same or a related business. MGM and Lions Gate – should one buy the other – are examples.
Financial buyers: most typically private equity firms. They buy businesses that have enough stable cash flow to support the addition of debt (added to leverage their investment and, hopefully, their return). Their goal is to run the company better than the prior management team and sell a few years down the road at a profit.
Distressed investor: comes in when they think an asset is (generally grossly) underpriced. Defaults on debt, market turmoil (and an overreaction with respect to valuations which plunge as the panicked or illiquid dump related assets), bankruptcies and predictions of gloom are all signals. Colony Capital made its name buying distress bank and commercial real estate holdings.
Corporate raider: targets a company whose publically traded equity he believes is undervalued. The raider then pressures management to make certain changes in an effort to raise the share price. Carl Icahn made his name as a corporate raider. The goal is typically to turn a quick profit.
White knight: What Lions Gate is likely looking for. A white knight is a bidder who comes in and usurps a corporate raider – typically by working with management to come up with a higher or more favorable bid. Example? None thus far in any of the transactions discussed herein.
In the above related transactions existing debt holders are also sometimes expressing interest in taking over the company – either to liquidate the assets of the business or assume operations.
An investment banker can and will tailor potential buyer lists in advance of any solicitation to maximize long term benefits from any transaction to shareholders, employees, management teams and even the company’s customers.
