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Friday, June 20, 2008

Informa and RBI

The upside of the postulated merger of UBM and Informa was that Informa got to improve its debt profile whilst UBM became part of a group with less dependence on marketing revenues. The downside, which in part explains the scuppering of the deal, is the reverse; Informa gets to be part of a group which is very exposed to marketing revenues and owns someweak mags, whilst UBM ends up part of a group with a weaker balance sheet.

No surprise then that a private equity club is now running its ruler over Informa. Don't hold your breathe. As The Guardian and others point out, the debt market is tough and the deal complicated.

Meanwhile I understand that RBI staff are now being told that a deal could get done in October (they were previously told August). Although inevitable, this increases the period of uncertainty. One hypothesis is that the deal will be a back to back to enable the new owner to immediately dispose of Total Jobs. Assume a price of £1.2b with 750m of debt. Some observers have speculated that totaljobs is worth on its own as much as £400m (thats about 10 times revenue which sounds mad - but this asset is highly attractive and will have a lot of auction heat.) The new RBI owner can trouser the proceeds from totaljobs and pay down the debt, leaving just £350m to service. I reckon thats an interest cover of around 5 times. That would leave RBI with plenty of free cash flow to buffer it from downturn, fund staff reduction costs or invest in product devlopment or further acquisition.

My only problem with this idea is that it implies a 5 multiple for the the business net of Totaljobs - which seems very low - or in a world where magzines are declining at a rapid rate perhaps that's a fair price.

This kind of back to back is complicated and time consuming to put in place. I forecast completion in December, not October.

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