Managed service provider NeuLion has entered into an agreement with privately-owned Endeavor to be acquired for USD $0.84 per share or $250 million. This represents a revenue multiple of 2.4x (calculation below).
Endeavor is the owner of several well-known media organizations. Most prominent among them is the talent agency William Morris (WMA); the sports media distributor, licensor, and marketer IMG; and as of 2016 the UFC, the
premier professional mixed martial arts league. It was widely reported late last year that investors valued the private Endeavor in excess of $6 billion.
NeuLion is the preferred streaming platform of the UFC. This then represents yet another transaction where a large client has decided to purchase its OTT technology provider. Other recent examples include Turner / iStreamPlanet, AT&T / Quickplay Media, and of course Disney / BAMTech.
(This is a discussion topic we will explore in much greater depth during the annual Devoncroft Summit at the 2018 NAB Show. We hope to see you there. )
The acquisition follows the recent developments of Telstra writing down its 2014 acquisition of Ooyala to zero and Hulu’s public disclosure of annual losses now approaching $1 billion. Both data points are a reminder of the continued business model challenges in the OTT segment.
Endeavor’s acquisition price represents a premium of 116% versus NeuLion’s stock close the day prior (Friday, 23rd), a premium of 104% versus the week earlier close, and a premium of 104% over the stock’s close a month prior.
The valuation multiples are not straightforward since this transaction was actually the culmination of several recent transactions by NeuLion’s management team. The largest such transaction was the divestiture of the assets NeuLion acquired from DivX. An affiliate of Fortress Investment Group, a large investment management firm, acquired the assets for $41.5 million cash consideration (1.4x TTM DivX revenue). The transaction closed on February 12, 2018. NeuLion had paid $59 million for DivX in January 2015.
Since the acquisition of NeuLion’s equity also acquires the cash of the business, we need to back out this cash amount for the purpose of calculating valuation multiples. The most recent balance sheet lists $53.9M of cash, and as noted above, the recent DivX sale brought in an additional $41.5M. Thus, the enterprise value for calculation purposes is $154.6 million.
Having backed out DivX cash, we also need to back out DivX revenue. NeuLion reports its Digital Platform revenues separately. These revenues were $64.2 million over the twelve month period prior to the acquisition, a decline of 8.5% versus the comparable year-earlier period owing primary to the loss of the NHL as a client. This equates to an enterprise value to trailing twelve month revenue multiple of 2.4x.
In the trailing twelve months, NeuLion did not generate a material amount of profit so it is not meaningful to review EBITDA valuations. (While NeuLion did generate ‘Adjusted EBITDA’ of $2.8 million, it was all ‘adjustments.’ Net loss over the same period was -$14.2 million).
The deal is expected to close during the second quarter of 2018. It has received both unanimous board approval and has the written consent of stockholders representing over 70% of NeuLion’s outstanding shares. While NeuLion waits for certain statutory closing activities to conclude, it has no ability to terminate the transaction and Management has expressly agreed to not solicit alternative transactions.
In other words, a near term closing of the transaction is anticipated by all parties.
Commenting on the transaction, President & CEO of NeuLion Roy Reichback stated, “We’re excited by the value delivered to our stockholders through this transaction, and we’re looking forward to the dynamic opportunities that being part of the Endeavor family will provide for both our current and new clients.”
Ariel Emanuel, CEO, Endeavor added, “NeuLion provides an ideal combination of technology and client services, and we’re excited for the value this brings to our existing partners and the foundation it provides for our future digital growth.”
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