When cornered by a screaming toddler, nothing works like a blast of Peppa Pig. Thrust the smartphone into their sticky little hands and press play. The tantrum passes. Addictive television can be priceless, which may be what interests ITV in Entertainment One.
The UK’s biggest commercial broadcaster wants content; eOne, as it calls itself, brings access to a lot of it. Invariably associated with Peppa, eOne has also a broad suite of TV and film assets, such as a majority stake in Mark Gordon, producer of Grey’s Anatomy.
In January, analysts at Berenberg wondered if ITV might consider buying eOne. On Wednesday came rumours of an approach, jolting eOne shares up by a fifth to £1.80. A clear reason for the interest would be price. eOne has fallen from a peak of £3.50 last year. The decline can be blamed on shareholder unease at the burden caused by acquisitions such as Mark Gordon.
ITV would be right to try, but lucky to succeed. It has spare cash flow, and is battling audience declines caused by the migration online. Restocking its content demands a constant search for new hits. The sort recently acquired (reality shows and talent contests) are vulnerable to attrition as fashions change, and shame or boredom pulls the audience away. Even hits such as Downton Abbey do not last for ever.
At the current price, eOne should refuse. Last year ITV paid 12 times earnings before interest, tax depreciation and amortisation for 80 per cent of Leftfield (producer of such must-sees as The Real Housewives of New Jersey). A similar multiple of eOne’s forecast ebitda (£130m) would put its total enterprise value at £1.5bn — equivalent to £1 more than the current share price.
eOne’s strategy is meant to double its ebitda by 2020. This is ambitious, but the strength of its franchises gives it a shot. Should Peppa crack the US market, the boost would render last year’s tantrum over financial miscues a distant memory. It is too soon to give up and sell out.
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