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ITV, UK's largest commercial broadcaster, announced that it was paying up to £175m with a mixture of cash, shares and loan notes for Friends Reunited, an online business based on a website which helps users find friends from school.
Media companies are trying to look for ways to bolster revenues through digital television, the internet, mobile phones and iPods, as consumers are spending less time on traditional media and more on new digital services.
This has led to a spate of acquistitions by media groups.
Rupert Murdoch's News Corp has recently bought internet sites, including Myspace.com. British Sky Broadcasting, the satellite television group said it would buy Easynet, the telephone and broadband group for £211m. NTL, the cable company, earlier this week announced that it was in talks to buy Virgin Mobile for over £800m.
ITV will pay an initial £120m which will be followed by a payment of up to £55m after 3 years. Of the initial consideration, Julie and Steve Pankhurst, the founders, will receive £30m as will Jason Porter, the co-founder. The management and employees will share £48m, while initial investors will be paid £12m.
On top of its core business, Friends Reunited operates genealogy, dating, and jobs sites. It has 15m registered UK members and 1m paying subscribers. The company is expected to report earnings before interest, tax, depreciation and taxation of £8.9m on turnover of £18.7m
The combination of Friends Reunited and itv.com, the broadcaster's website, will create UK's 8th largest online operation in terms of unique users.
Charles Allen, the ITV chief executive, said the deal was part of the broadcaster's strategy to grow its business outside ITV1, the core terrestrial channel. He said the deal would be earnings enhancing from the first year, and the broadcaster will benefit from cross promotion, direct payment from consumers and a management team which has grown the website business.
“This is not simply about eyeballs. What this does is create a commercial relationship with them,” said Mr Allen.
Analysts were generally positive on the move. “While the long term benefits are far from clear, Friends Reunited has a relatively strong brand in the UK, is ebitda positive, and at this price will not stretch ITV's financial metrics outside their current rating category,” said Alex Griffiths, director at Fitch, the rating agency. He added the move was “a relatively safe business with which to conduct this sort of experiment.” ITV shares rose 0.25p to 109p.
Friends Reunited was advised by Longacre Partners in London.
Additional reporting by Andrew Edgecliffe-Johnson