confidential draft embassy row acquisition overview april 2008
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Confidential Draft
Embassy Row Acquisition Overview
April 2008
2
Deal RationaleCurrent SPE RelationshipHistory of Success
Embassy Row Overview
• Recent shows:– Who Wants to be a Millionaire*– Wife Swap*– The Power of 10 on CBS– The 9, online with Yahoo!– Buzz Session with Yahoo!– World Series of Pop Culture on
VH1– Grand Slam on GSN– Chain Reaction on GSN– Boy Meets Grill on
Food Network
• Projects in development:– The Newlywed Game– The Dating Game– Pyramid– Make My Day– The Empire– Red Versus Blue– What Would Martha Do?– Couples Dating Couples– National Bible Championships
• SPE’s existing deal with Davies runs through Jan. 2, 2009
• During this term SPE:–Funds $1.2MM of Embassy
Row overhead–Recoups up to $600K in
Executive Producer (EP) Fees–Receives all copyright to
shows created by ER–Derives profits from its share of
format profits
• ER derives its profits from –EP fees–Mark-up on overhead charged
to shows–Ongoing profit participation
• Embassy Row becomes the cornerstone of a domestic light entertainment business
• Creates Enterprise Value for SPE
• Expands the pipeline of formats for 2WayTraffic to distribute
• Acquisition creates a deeper relationship than the current term deal
–Extends the relationship beyond the current term
–Acquires ER’s existing profit streams
–Aligns Davies’ incentives with our own
SPE plans to submit an LOI to acquire ER for up to $75MM in total consideration ($25MM cash up-front + $50MM in earn-outs)
Note: * Not included in current deal
3
• $25MM cash at close
• Up to $50MM of additional earn-outs
–Value of earn-outs would be calculated in Year 5 as: 7x (Average of Last 3 Years EBITDA) minus ($25MM)
• Earn-out payments would be made between Year 5 and Year 10
–10% of the earn-out paid to employees end of Year 5
–10% of earn-out paid to employees in Year 6
–80% of earn-out paid to Davies over Years 6-10 if a) he remains employed by SPT and b) ER meets minimum EBITDA targets
–Earn-out payments can be accelerated if Davies exceeds EBITDA goals
Current Deal Structure
Max Total Consideration: $75MM
PV(1) of Max Total Consideration: $41MM(1) - $48MM(2)
Note: (1) PV of up-front payment and maximum earn-outs fully vested in Years 6-10 at 16.5% discount rate
(2) PV of up-front payment and maximum earn-outs fully vested in Year 5 at 16.5% discount rate
4
• The portion of the “Earn-out Value” not paid to employees will be paid as follows:
• “Year 5 Acceleration”
– If the Earn-out Value is $50MM;
• All or a portion of the earn-out will be eligible for payment in year 5
• For every $1 by which cumulative Year 1-5 EBITDA exceeds $40MM; $0.40 of the earn-out will be paid in year 5
• “Vesting Payments”
–Any portion of the earn-out not paid in year 5 or set aside for the employee pool, will be payable 20% per year over the next 5 years (years 6, 7, 8, 9, 10) if:
• ER EBITDA in any given year meets or exceeds a threshold
Threshold EBITDA will equal the lesser of 80% of the year 3-5 average or $10.7MM
Earnings are “crossed” for purposes of vesting (i.e., earnings shortfall in early years can be made-up in future years)
• And Davies remains employed by SPT in that year
• “Acceleration of Vesting Payments”
– In Years 6-10, any payments normally payable under the Vesting Payments will be subject to acceleration
• For every $1 a given year’s ER EBITDA exceeds 125% of the Year 3-5 average; Davies will accelerate $0.40 of the total vesting payments
–Any acceleration will decrease future year payments ratably
The “Earn-out Value”
5
EBIT Impact*
($10.0)
($5.0)
$0.0
$5.0
$10.0
$15.0
Yr 1 Yr 2 Yr 3 Yr 4 Yr 5
Do
llars
in M
M
Davies Case Low Case Base Case High Case
High Case ($3.0) $3.7 $7.9 $11.3 $13.4
Davies Case ($1.0) ($1.6) $2.5 $4.8 $7.0
Base Case ($3.0) ($3.0) ($0.7) $1.5 $2.4
Low Case ($3.6) ($4.7) ($5.6) ($3.6) ($2.8)
Note: * Excludes profits in Power of 10 already owned by SPT as a result of our existing term deal
6
$9.4
$52.8
$139.2
$200.0
$0
$50
$100
$150
$200
$250
Low Base Davies High
($ in MM)
Cumulative 10 Yr. EBITDA Cumulative 10 Yr. EBIT* NPV
($12.5)
$30.9
$75.1
$134.4
($20)
$0
$20
$40
$60
$80
$100
$120
$140
$160
Low Base Davies High
($ in MM)
($18.1)
$12.2
$57.2
$98.1
($40)
($20)
$0
$20
$40
$60
$80
$100
$120
Low Base Davies High
($ in MM)
Economic Impact
Notes: In all cases, assumes EBITDA is flat in years 6-10 for purposes of calculating any earn-out acceleration. * EBIT after Earn-out
7
Preliminary Deal Timing
April 9• Resolve final, high-level deal points with Davies & his
advisors
April 11 • Brief NY (and potentially Tokyo), prior to LOI distribution
April 14 • Send LOI
April 18• Complete LOI negotiations, execute; 3 month exclusivity
commences
Mid June• Substantive diligence complete; contract near-completion;
GEC approval
End June • Close
July 18 • Exclusivity ends
M T W T F S S
1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30
M T W T F S S
1 2 3 4
5 6 7 8 9 10 11
12 13 14 15 16 17 18
19 20 21 22 23 24 25
26 27 28 29 30 31
M T W T F S S
1
2 3 4 5 6 7 8
9 10 11 12 13 14 15
16 17 18 19 20 21 22
23 24 25 26 27 28 29
30
M T W T F S S
1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31
May 2008
April 2008
June 2008
July 2008
8
– Appendix –
9
Key Assumptions
Low Case Base Case High Case
Model Adjustments
• Slate: Slate remains unchanged
• Power of 10: Excludes profits from
Power of 10 (format/syndication)
• Format Profits: Format profits are at
slightly below the industry average
($3.0M)
• Local Production: No local production
• Interactive Profit Growth Rate:
Unchanged at 0%
• Factual Profits from ER: Does not
include the profits from the Factual
portion of Embassy Row’s business
• Slate: Slate remains unchanged
• Power of 10: Includes profits from Power
of 10 (format/syndication)
• Format Profits: Format profits are at
slightly below the industry average
($3.0M)
• Local Production: Local production in
the UK +$3M (for Power of 10)
• Interactive Profit Growth Rate:
Increased to 5%
• Factual Profits from ER: Includes the
profits from the Factual portion of
Embassy Row’s business
– Factual Profit Growth Rate at 5% for
2011/2012
– Add +2 HC to manage production
• Slate: Slate includes a home run
network show that starts it run in FY09
• Power of 10: Includes profits from
Power of 10 (format/syndication)
• Format Profits: Above industry
average ($6.5M) for home run show,
but remains at $3.0M for others
• Local Production: Local production in
the UK +$3M for Pof10; UK + 3
additional territories at +$1M per for
“Home Run”
• Interactive Profit Growth Rate:
Increased to 10%
• Factual Profits from ER: Includes the
profits from the Factual portion of
Embassy Row’s business
– Factual Profit Growth Rate at 5%
for 2011/2012
– Add +2 HC to manage production
Model Adjustments Model Adjustments
10
Low Case – Economic Impact
NPV
Incremental EBITDA: $3.2
EBIT: ($11.0)
Terminal Value (1): $3.7
Total Consideration: ($25.0)
Net Present Value (2): ($18.1)
Nominal
EBITDA: $9.4
EBIT: ($12.5)
Terminal Value: $17.2
Total Consideration: ($25.0)
Consideration / EBITDA: 2.7x
Notes: Assumes a risk adjusted discount rate of 16.5% for all NPV calculations (1) Includes exit at 11x multiple (2) Includes $25MM up-front, incremental EBITDA less earn-outs, plus exit at 11x incremental EBITDA in FY18
P&L FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Sum
Incremental EBITDA $0.8 ($0.3) ($1.2) $0.8 $1.6 $1.6 $1.6 $1.6 $1.6 $1.6 $9.4
Amort of Upfront ($4.4) ($4.4) ($4.4) ($4.4) ($4.4) $0.0 $0.0 $0.0 $0.0 $0.0 ($21.9)
Amort of Employee Pool $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Amort of Remainder $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
EBIT ($3.6) ($4.7) ($5.6) ($3.6) ($2.8) $1.6 $1.6 $1.6 $1.6 $1.6 ($12.5)
EBITDA for Earnout Calc $0.4 ($1.5) ($1.7) ($1.5) ($2.6) ($2.6) ($2.6) ($2.6) ($2.6) ($2.6) ($20.0)
NPV
Earn-Out (Cash Payments) $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Incremental EBITDA $0.8 ($0.3) ($1.2) $0.8 $1.6 $1.6 $1.6 $1.6 $1.6 $1.6 $9.4
Terminal Value $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $17.2 $17.2
Sum for NPV Calculation $0.8 ($0.3) ($1.2) $0.8 $1.6 $1.6 $1.6 $1.6 $1.6 $18.7 $26.6
11
Base Case – Economic Impact
NPV
Incremental EBITDA: $21.0
EBIT: $6.9
Value of Exit (1): $16.1
Total Consideration: ($25.0)
Net Present Value (2): $12.2
Nominal
EBITDA: $52.8
EBIT: $30.9
Terminal Value: $74.2
Total Consideration: ($25.0)
Consideration / EBITDA: 47%
Notes: Assumes a risk adjusted discount rate of 16.5% for all NPV calculations (1) Includes exit at 11x multiple (2) Includes $25MM up-front, incremental EBITDA less earn-outs, plus exit at 11x incremental EBITDA in FY18
P&L FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Sum
Incremental EBITDA $1.4 $1.4 $3.7 $5.8 $6.7 $6.7 $6.7 $6.7 $6.7 $6.7 $52.8
Amort of Upfront ($4.4) ($4.4) ($4.4) ($4.4) ($4.4) $0.0 $0.0 $0.0 $0.0 $0.0 ($21.9)
Amort of Employee Pool $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Amort of Remainder $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
EBIT ($3.0) ($3.0) ($0.7) $1.5 $2.4 $6.7 $6.7 $6.7 $6.7 $6.7 $30.9
EBITDA for Earnout Calc $1.0 $0.3 $3.3 $3.6 $2.5 $2.5 $2.5 $2.5 $2.5 $2.5 $23.4
NPV
Earn-Out (Cash Payments) $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Incremental EBITDA $1.4 $1.4 $3.7 $5.8 $6.7 $6.7 $6.7 $6.7 $6.7 $6.7 $52.8
Terminal Value $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $74.2 $74.2
Sum for NPV Calculation $1.4 $1.4 $3.7 $5.8 $6.7 $6.7 $6.7 $6.7 $6.7 $80.9 $127.0
12
Davies Case – Economic Impact
NPV
Incremental EBITDA: $56.6
EBIT: $24.4
Value of Exit (1): $41.4
Total Consideration: ($40.8)
Net Present Value (2): $57.2
Nominal
EBITDA: $139.2
EBIT: $75.1
Terminal Value: $190.6
Total Consideration: ($73.3)
Consideration / EBITDA: 53%
Notes: Assumes a risk adjusted discount rate of 16.5% for all NPV calculations (1) Includes exit at 11x multiple (2) Includes $25MM up-front, incremental EBITDA less earn-outs, plus exit at 11x incremental EBITDA in FY18
P&L FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Sum
Incremental EBITDA $3.4 $6.0 $11.4 $14.4 $17.3 $17.3 $17.3 $17.3 $17.3 $17.3 $139.2
Amort of Upfront ($4.4) ($4.4) ($4.4) ($4.4) ($4.4) $0.0 $0.0 $0.0 $0.0 $0.0 ($21.9)
Amort of Employee Pool $0.0 ($1.7) ($1.7) ($1.7) ($1.7) ($1.7) $0.0 $0.0 $0.0 $0.0 ($8.4)
Amort of Remainder $0.0 ($1.5) ($2.8) ($3.6) ($4.3) ($4.3) ($4.3) ($4.3) ($4.3) ($4.3) ($33.8)
EBIT ($1.0) ($1.6) $2.5 $4.8 $7.0 $11.3 $13.0 $13.0 $13.0 $13.0 $75.1
EBITDA for Earnout Calc $3.4 $6.0 $8.3 $10.5 $12.6 $12.6 $12.6 $12.6 $12.6 $12.6 $103.8
NPV
Earn-Out (Cash Payments) $0.0 $0.0 $0.0 $0.0 ($4.8) ($12.5) ($7.7) ($7.7) ($7.7) ($7.7) ($48.3)
Incremental EBITDA $3.4 $6.0 $11.4 $14.4 $17.3 $17.3 $17.3 $17.3 $17.3 $17.3 $139.2
Terminal Value $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $190.6 $190.6
Sum for NPV Calculation $3.4 $6.0 $11.4 $14.4 $12.5 $4.8 $9.6 $9.6 $9.6 $200.2 $281.5
13
High Case – Economic Impact
NPV
Incremental EBITDA: $81.5
EBIT: $47.8
Value of Exit (1): $58.5
Total Consideration: ($42.0)
Net Present Value (2): $98.1
Nominal
EBITDA: $200.0
EBIT: $134.4
Terminal Value: $269.6
Total Consideration: ($75.0)
Consideration / EBITDA: 37%
Notes: Assumes a risk adjusted discount rate of 16.5% for all NPV calculations (1) Includes exit at 11x multiple (2) Includes $25MM up-front, incremental EBITDA less earn-outs, plus exit at 11x incremental EBITDA in FY18
P&L FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Sum
Incremental EBITDA $1.4 $12.3 $17.6 $21.8 $24.5 $24.5 $24.5 $24.5 $24.5 $24.5 $200.0
Amort of Upfront ($4.4) ($4.4) ($4.4) ($4.4) ($4.4) $0.0 $0.0 $0.0 $0.0 $0.0 ($21.9)
Amort of Employee Pool $0.0 ($1.8) ($1.8) ($1.8) ($1.8) ($1.8) $0.0 $0.0 $0.0 $0.0 ($8.8)
Amort of Remainder $0.0 ($2.5) ($3.5) ($4.4) ($4.9) ($3.9) ($3.9) ($3.9) ($3.9) ($3.9) ($35.0)
EBIT ($3.0) $3.7 $7.9 $11.3 $13.4 $18.8 $20.6 $20.6 $20.6 $20.6 $134.4
EBITDA for Earnout Calc $1.0 $10.1 $12.6 $13.1 $12.2 $12.2 $12.2 $12.2 $12.2 $12.2 $109.9
NPV
Earn-Out (Cash Payments) $0.0 $0.0 $0.0 $0.0 ($8.6) ($12.3) ($7.3) ($7.3) ($7.3) ($7.3) ($50.0)
Incremental EBITDA $1.4 $12.3 $17.6 $21.8 $24.5 $24.5 $24.5 $24.5 $24.5 $24.5 $200.0
Terminal Value $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $269.6 $269.6
Sum for NPV Calculation $1.4 $12.3 $17.6 $21.8 $15.9 $12.2 $17.2 $17.2 $17.2 $286.8 $419.6
14
NPV
Incremental EBITDA: $55.5
EBIT: $18.9
Value of Exit (1): $36.8
Total Consideration: ($41.8)
Net Present Value (2): $50.6
Nominal
EBITDA: $134.9
EBIT: $69.3
Terminal Value: $169.7
Total Consideration: ($75.0)
Consideration / EBITDA: 56%
Notes: Assumes a risk adjusted discount rate of 16.5% for all NPV calculations (1) Includes exit at 11x multiple (2) Includes $25MM up-front, incremental EBITDA less earn-outs, plus exit at 11x incremental EBITDA in FY18
Special Case 1 – “Year 5 Spike”
• Early performance is above vesting threshold and requires SPT to accelerate amortization
P&L FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Sum
Incremental EBITDA $2.0 $6.0 $11.1 $13.9 $24.7 $15.4 $15.4 $15.4 $15.4 $15.4 $134.9
Amort of Upfront ($4.4) ($4.4) ($4.4) ($4.4) ($4.4) $0.0 $0.0 $0.0 $0.0 $0.0 ($21.9)
Amort of Employee Pool $0.0 ($1.8) ($1.8) ($1.8) ($1.8) ($1.8) $0.0 $0.0 $0.0 $0.0 ($8.8)
Amort of Remainder $0.0 ($1.7) ($3.2) ($4.0) ($26.1) $0.0 $0.0 $0.0 $0.0 $0.0 ($35.0)
EBIT ($2.4) ($1.8) $1.8 $3.8 ($7.5) $13.7 $15.4 $15.4 $15.4 $15.4 $69.3
EBITDA for Earnout Calc $2.0 $6.0 $8.0 $10.0 $20.0 $10.7 $10.7 $10.7 $10.7 $10.7 $99.5
NPV
Earn-Out (Cash Payments) $0.0 $0.0 $0.0 $0.0 ($7.4) ($12.5) ($7.5) ($7.5) ($7.5) ($7.5) ($50.0)
Incremental EBITDA $2.0 $6.0 $11.1 $13.9 $24.7 $15.4 $15.4 $15.4 $15.4 $15.4 $134.9
Terminal Value $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $169.7 $169.7
Sum for NPV Calculation $2.0 $6.0 $11.1 $13.9 $17.3 $2.9 $7.9 $7.9 $7.9 $177.6 $254.6
15
NPV
Incremental EBITDA: $44.2
EBIT: $11.6
Value of Exit (1): $0.0
Total Consideration: ($36.7)
Net Present Value (2): $7.5
Nominal
EBITDA: $94.1
EBIT: $32.9
Terminal Value: $0.0
Total Consideration: ($57.6)
Consideration / EBITDA: 61%
Notes: Assumes a risk adjusted discount rate of 16.5% for all NPV calculations (1) Includes exit at 11x multiple (2) Includes $25MM up-front, incremental EBITDA less earn-outs, plus exit at 11x incremental EBITDA in FY18
Special Case 2 – “Accelerates Vesting, but Later Generates Losses”
• Cumulative earnings in years 6-10 would not normally entitle vesting, but cross-collateralizing and accelerating allows him to get paid a piece
P&L FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Sum
Incremental EBITDA $2.0 $6.0 $11.1 $13.9 $16.7 $9.7 $24.7 $15.4 ($0.3) ($5.3) $94.1
Amort of Upfront ($4.4) ($4.4) ($4.4) ($4.4) ($4.4) $0.0 $0.0 $0.0 $0.0 $0.0 ($21.9)
Amort of Employee Pool $0.0 ($1.6) ($1.6) ($1.6) ($1.6) ($1.6) $0.0 $0.0 $0.0 $0.0 ($7.9)
Amort of Remainder $0.0 ($1.9) ($3.6) ($4.5) ($5.4) ($3.1) ($8.0) ($5.0) $0.0 $0.0 ($31.5)
EBIT ($2.4) ($1.9) $1.6 $3.5 $5.4 $5.0 $16.7 $10.4 ($0.3) ($5.3) $32.9
EBITDA for Earnout Calc $2.0 $6.0 $8.0 $10.0 $12.0 $5.0 $20.0 $10.7 ($5.0) ($10.0) $58.7
NPV
Earn-Out (Cash Payments) $0.0 $0.0 $0.0 $0.0 ($4.5) ($4.5) ($17.4) ($6.2) $0.0 $0.0 ($32.6)
Incremental EBITDA $2.0 $6.0 $11.1 $13.9 $16.7 $9.7 $24.7 $15.4 ($0.3) ($5.3) $94.1
Terminal Value $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Sum for NPV Calculation $2.0 $6.0 $11.1 $13.9 $12.2 $5.2 $7.3 $9.2 ($0.3) ($5.3) $61.5
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