What's new:
■ UBM set to acquire US events company Advanstar for $972m
■ £563m rights issue to fund the purchase
■ The deal balances its large emerging markets portfolio
UBM's (UBM) exposure to emerging markets paid off handsomely in the first half, but the events group is now seeking to rebalance its portfolio westwards. It has agreed to acquire US events business Advanstar for $972m (£599m) in cash. Advanstar boasts a portfolio of 54 trade shows and 100 conferences, including the highly-prized Magic fashion show in Las Vegas.
A successful deal would make UBM the largest US events business by revenue and add five new shows to the combined group's 20 largest events. Events would also account for about 70 per cent of UBM's sales in 2015, up from 62 per cent.
UBM will fund its purchase via a £563m rights issue in November, and has also secured a $100m bridge facility. It expects to incur $33m in integration costs, but forecasts cost synergies of about $10m annually, starting in the third full year after the deal is completed.
Advanstar recorded $211m in events sales last year - about 46 per cent of UBM's event revenues in 2013 - and boasts a similar cash profit margin to UBM. But its total sales have grown between 2 and 3 per cent over the past two years, which seems modest. And the purchase price values it at 11 times 2013 cash profits after synergies, which looks lofty for a mature US business.
Westhouse Securities says...
Add. The deal marks a dynamic start to new chief executive Tim Cobbold's tenure, and the commercial logic stands up quite well. Advanstar broadens UBM's events portfolio and balances its revenues away from China and Asia, which offer superior growth but entail more risk. Although the price isn't super cheap, it's pretty reasonable. The market is currently in a period of limbo ahead of the strategy day and rights issue. We're reviewing our forecasts, which were for full-year pre-tax profit of £141m, giving EPS of 44.9p, rising to £161.8m and 51.6p in 2015.
Liberum says...
Buy. The deal price was slightly higher than we anticipated, and it would have been better for UBM to sell PR Newswire. That would make it a pure-play events company and probably spark a re-rating. Nevertheless, the acquisition should offset UBM's reliance on China, which continues to weigh on its shares. The rights issue should also improve its gearing, and Advanstar's focus on the US creates the potential for the 'geocloning' of certain events. We have a price target of 840p, and prior to the deal expected full-year EPS of 47p.
