How Are Acquisitions Panning Out To Be In Media And Telco Space- QMS, VOC

Media and telecom sectors are two important sectors of the Australian economy. If an investor wants to invest in any of these sectors, he/she must be aware of any substantial acquisition or merger happening or going to happen in these spaces.

The below mentioned two stocks - QMS Media and Vocus Group, belong to media and telecom space, respectively. These stock have recently announced their intentions in relation to their own acquisitions. While QMS Media is in the process of getting acquired by another company, Vocus group has reiterated that is currently not for sale.

QMS Media Limited (ASX: QMS)

Leading outdoor media company, QMS Media Limited is in the process of getting acquired by Quadrant Private Equity. In an update provided on 29 October 2019, QMS Media announced that it has entered into a Scheme Implementation Deed with Quadrant under which Quadrant will acquire 100% of the issued share capital of QMS Media for a cash price of $1.22 per share by way of a court-approved scheme of arrangement.

Following the release of this news, QMS stock price witnessed an increase of 23.5% during todays’ trading session.

QMS Media’s Board of Directors have recommended QMS Media shareholders to vote in favour of the Scheme as they believe that this offer allows QMS shareholders to realise significant value for their shares.

As per QMS Media Chief Executive Officer, Barclay Nettlefold, the recommended acquisition of QMS by Quadrant represents an excellent outcome for QMS shareholders, partners and employees, plus it is a testament to the company’s sustained growth in a challenging market, and its continued market leading digital revenue contribution, led by QMS’ strong and experienced executive management team.

Rationale Behind the Scheme

As per QMS Board, the Scheme is compelling for QMS Media shareholders for the following reasons:

Valuation: The Scheme consideration of $1.22 per share is representing an EV of $571.6 million, implying an EV / CY19 EBITDA multiple of 9.4x. This represents an attractive valuation having reference to a challenging media market as reflected in the share price performance of media peers which have declined on average ~7.6% year-to-date4. In comparison, the S&P/ASX200 Index has traded up 20.1% on a year-to-date basis.

Scheme Consideration Premium: The Scheme Consideration of $1.22 per share represents an attractive premium of:

• 3% premium to the undisturbed closing price on 23 October 2019 of $0.895 per share
• 1% premium to the 3-month VWAP to 23 October 2019 of $0.877 per share
• 9% premium to the 6-month VWAP to 23 October 2019 of $0.819 per share

Certainty of Value: The 100% cash consideration provides QMS Media shareholders with certainty of value and the opportunity to realise their investment for cash, in full.

QMS Media recently announced its intention to sell its 40%-owned multi-platform New Zealand media company, MediaWorks TV as well as the real estate associated with the TV business including its head office and studios.

In the past six months, QMS stock price witnessed an increase of 36.05% as on 25 October 2019. At market close on 29 October, QMS stock was trading at a price of $1.235, which is also its current 52-weeks high price.

Vocus Group Limited (ASX: VOC)

Australia’s leading telecom services provider, Vocus Group Limited held its 2019 AGM on 29 October 2019. At the AGM, Chairman Bob Mansfield highlighted that in the beginning of the year, the company received bids from EQT and AGL, which did not proceed. Mr. Bob emphasized that the company was not, and is not, for sale.

Vocus Group was approached by two highly credible parties, who made an indicative offer for the company. However, neither of the transaction have proceeded. The bidders decided that whilst the company’s assets and the market opportunity were very attractive, they could not balance the execution risk at this relatively early stage of the turn around with integrating these assets into their own business models.

Due to the receiving of bids, there was a delay in the process of recruiting a female Director to the Board. Due to the uncertainty, it was not sensible for the company to continue discussions with potential Directors when it was unclear if there would even be a need for a Board.

The company is now four months into FY20 and is in a strong position to deliver on its core market opportunity as Australia’s specialist fibre and network solutions provider.

Vocus Group Progress

The company has established three discrete businesses in:

• Vocus Network Services
• Vocus Retail; and
• Vocus New Zealand.

Each of these businesses operate autonomously with accountability and speed.

The company’s core business is Vocus Network Services, where its strategic assets and core value creation opportunity lies as Australia’s specialist fibre and network solutions provider. Vocus has a Tier 1 fibre and network asset in Australia and the opportunity to substantially grow market share, revenue and profit in the enterprise, government and wholesale markets.

The company financial results in FY19 were in line with its guidance.

FY19 Results Summary (Source: Company Reports)

The growth in Vocus Network Services and Vocus New Zealand was offset by a revenue decline in Vocus Retail, however, digital program, operating cost efficiencies and improved supplier negotiations resulted in EBITDA margins in this business increasing by 1.8%.

Vocus is also the leader in construction of submarine cable in Australia with quality submarine asset in its 4,600km Australia Singapore Cable. The 4,700km Coral Sea Cable being built by Vocus for Australian Government is on track and on budget.

The company also reiterated its FY20 guidance of underlying EBITDA in the range of $359-$379 million.

In the last five years, VOC stock has declined by 41.04% as on 28 October 2019. At market close on 29 October 2019, VOC stock was trading at a price of $3.500, up by 2.941% intraday, with a market cap of ~$2.11 billion.

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