It’s over a week since Haynes Publishing Group put itself up for sale, as detailed in an earlier post, and I wanted to discuss some elements of the formal sales process. Haynes decided to solicit offers for the company through the formal sale process framework as set out in the UK’s Takeover Code. “It provides some flexibility to offeree boards in managing an offer process where they have decided the company should be sold,” says Paul Arathoon, a partner with lawyers Charles Russell Speechlys.
Arathoon, in a piece analysing the formal sales process, says a company using this framework would have to identify any party making an approach if one had been received. Launching such a process would encourage competing bids, but doesn’t necessarily mean that the company will be sold, according to the corporate lawyer. However, Haynes’ sales process doesn’t include a strategic review, indicating a clear expression that it is putting itself up for sale. A formal sales process does offer a “more flexible structure to a potentially difficult sell-side process”, concludes Arathoon.
A number of things have already started to happen besides the work behind the scenes by Europa Partners who are acting as advisers for the sale. Haynes’ stockbrokers Panmure Gordon have begun disclosing their dealing in Haynes shares on Form 8.5 filings, as outlined in the table below:
This data isn’t necessarily very helpful, although it gives us a little insight into how the company’s broker is helping to make a market in Haynes stock. It may also be able to help us eliminate the broker’s trades from any bigger picture of trading in the company’s shares as a whole.
My investment in Haynes Publishing Group has already proved successful and I’m rather sad to see it being sold because I’m confident the company could continue growing and paying consistent dividends. I don’t see the point in selling at the moment, despite the recent pop in the company’s share price. The launching of a formal sales process suggests that competitive bidding will help push up any potential offer. Selling now would also incur further dealing fees, which seems unnecessary. So the question becomes, is it worthwhile buying more Haynes shares?
Simon Hedger, a small cap investor, posted some thoughts on valuation in comments on the cube.investments website, anticipating a potential value of 600p per share, but as high as 735p. That represents a premium of between 41 to 73 per cent based on Friday’s close of 424p. That’s some uplift based on what the market is pricing at the moment.
Hedger uses a few different metrics for comparison. We’ll take a closer look at EV/EBITDA…
- Haynes market capitalisation = 424p (Friday’s closing price) x 16,351,540 (outstanding shares) = £69.3 million
- Enterprise value = £69.3 million + £23.8 million (company is debt free, but has a significant pension deficit) – £4.9 million (net cash) = £88.2 million
- EBITDA = £11.7 million (statutory, according to annual report 2019)
- EV/EBITDA = £88.2 million / £11.7 million = 7.5
Some points of comparison…
The media sector has a EV/EBITDA value of 12.5, according to FTSE Russell.
Multiples for mid-market private equity deals in 2018, according to KPMG:
- All merger and acquisitions EV/EBITDA = 10.5
- All private equity EV/EBITDA = 12.4
- All mid-market EV/EBITDA = 12.2
Aswath Damodaran, who works on corporate finance and valuation at the Stern School of Business at New York University, has some interesting data on EV/EBITDA multiples in different sectors. This concerns the US, but does include 33 different firms within the publishing and newspapers sector:
- Only positive EBITDA firms = 6.84
- All firms = 8.25
Things to note…
Haynes is no longer a traditional, pure play publishing or media business and has a lot of revenue generated digitally. In fact, many of its products would be considered to be within the realm of digital services.
Neither would Haynes be considered mid-market. Nevertheless, as a starting point, based upon all those examples, let’s use the most conservative multiple of 6.84 and highest of 12.5, which working backwards gives us a range of valuations between 374p and 779p based upon EV/EBITDA. Even with a very conservative EV/EBITDA multiple we’re not that far off the current share price. I would therefore suggest that there’s some potential lift to the share price in any sale.
I previously noted how Europa Partners were handling the sale of Haynes Publishing Group, pointing out their previous deals, including the sale of New Scientist magazine. I didn’t notice until now that this particular transaction is of interest given the role of one of Haynes’ directors. Nina Wright, appointed independent non-executive director in August 2016, is also the CEO of New Scientist Media Company. Is that just a coincidence? New Scientist was bought by Bernard Gray, Louise Rogers and Matthew O’Sullivan, a team who had previously acquired the Times Educational Supplement, according to an article about the sale on New Scientist’s website. Could they be in the running to make a bid for Haynes?