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Playboy, the listed Illinois-based adult entertainment company, could be exploring private equity interest on a preliminary basis, sources said.
A source close to Playboy said it is now possibly interested in obtaining information on private equity firms who might be willing to explore a purchase of the company.
A source familiar with Playboy said the company has attempted to gauge interest in the past concerning a sale, but that it is unlikely it has either retained an investment bank, begun a formal auction process, or plans to do so in the near future.
It is understood that Playboy was close to selling a majority stake to private investors about five years ago but a deal broke down when Playboy founder Hugh Hefner, who would have retained a minority stake, balked at the prospect of losing control of his company.
It is also understood that the company had likely pursued the sale in a process handled by the investment banking arm of UBS, but that another likely reason the deal never came to fruition was Playboy’s asking price of approximately USD 800m.
Playboy’s CEO Christie Hefner did not respond to requests for an interview. UBS could not be reached for comment.
According to prior reports, Christie Hefner has said the company is not for sale, and is not considering a sale of assets such as the Playboy Mansion. Previous reports, however, have also cited activist investor pressure to sell the company.
If Playboy is still seeking a valuation close to the USD 800m mark, then it is likely not seriously pursuing a sale, the source familiar said, as a potential bidder would essentially be buying cash flow. Last year, Playboy had EBITDA of almost USD 20m, net income close to USD 3m, on revenues of USD 334m and a market valuation of USD 385m as of 17 July.
One major shareholder, though, believes Playboy should either be sold or its management changed. Playboy’s mansion, its cable operations, its internet business and its licensing division are worth far more than its current market capitalization of USD 380m, the shareholder said.
The company could, for example, unlock value by selling the expensive-to-run Playboy Mansion for USD 40m to USD 50m, said the shareholder. Playboy’s brand has a much greater cache in Asia than in the US, the shareholder added, and as such its shares are worth at least USD 20 per share - nearly twice its current trading value.
“With all this private equity money out there, maybe they do change their minds,” said the shareholder.
An industry observer agreed that the brand is attractive in Asia, and said Asian investors had fewer qualms about investing in adult entertainment companies, citing Hong Kong-based Li & Fung as an example of a potential bidder.
Meanwhile, an industry banker explained that while some of Playboy’s assets could be sold, such as the Playboy Mansion, the company would risk losing some of its cache, as the mansion in particular is utilized for promotion of the brand. Playboy could sell some of the assets, the banker said, but then, “what do you have?”
The banker also voiced concern that Playboy had spun off its online business, which is a key component for many adult entertainment companies to fuel future growth, while its magazine and broadcast businesses are in decline.
There could also be an opportunity for Playboy to enter the casino business, opening its own branded operations beginning with Las Vegas, followed by Atlantic City, and then perhaps internationally, the industry observer said, noting LFP’s (Larry Flynt Publications) success.
The industry banker said pursuing the casino market can be fairly profitable if Playboy were to actually own all or a portion of the casinos under its name, therefore obtaining a share of the gambling revenues, but not if Playboy is simply selling naming rights or receiving royalties for the use of its name.
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