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Friday, September 22, 2006

Incisive Thinking

The Guardian reports that yesterdays announcement of the MBO of Incisive Media backed byApax may flush out other bids. Tim Weller, CEO complains that his company has been underrated by City investors. Apparently at least one shareholder thinks that the premium offered by Apax is "low ball".

Part of the problem is envy that the management got rich (er). Good luck to them. They built the business. Private equity deals are structured differently for management than public deals. Right now the senior management of Incisive own around 5% of the company. Once the deal is consummated they will pocket around £15m of cash and reinvest the rest in return for around 10% of the equity. Some might think that the management are doing very well at insitutional shareholders expense - doubling their stake but getting 2/3 of their money.

There is no getting away from it, this is good deal for the management, but their 10% is of a different kind than their 5%. In the first place it won't be easy to liquidate. Secondly the deal will be funded with debt making the balance sheet very heavily leveraged. Wiithout further investment, and presumably therefore a future dilution for the management, the growth that Weller aspires to will be hard to come by. Most of his free cash will be servicing the debt put in to do this deal. Their won't be much left over to fund a b2b aggregation play.

Apax have promised to "buy and build". That means acquisitions not organic growth. It will be interesting to see if Apax are good as their word.


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