Posts

Aurum Deal of the Month – October 2016

Sony Pictures Networks India (SPN) and its affiliates have entered into definitive agreements to acquire TEN Sports Network from Zee Entertainment Enterprises Limited (ZEE) and its subsidiaries for USD 385 million.

Enterprise Value/ Sales: 4X

The Transaction

In August 2016, Sony Pictures Networks India (SPN) announced that it will acquire Ten Sports for INR 26,000 million (USD 385 million) from Subhash Chandra-run Zee Entertainment Enterprises (ZEE). The sports business is held by Zee under the wholly-owned subsidiaries viz. Taj TV Ltd, and Taj Television India Pvt. Ltd. The transaction is expected to be completed by the end of FY17. ZEE had bought Ten Sports from Dubai-based Abdul Rahman Bukhatir’s Taj Group in 2006.

Zee Sports business: Portfolio

Zee Sports business: Portfolio

Zee Sports Business: Revenue and Profitability

Zee Sports Business: Revenue and Profitability

As part of the transaction, Zee has signed a Non-compete clause with Sony for 4 years. Also, any outcome from ongoing court cases with BCCI (dispute amount of INR 1,500 million and Prasar Bharti (INR 1,250 million with interest) will be borne by Zee.

Valuation

Enterprise Value = INR 26,000 million
FY16 Sales = INR 6,310 million
EV/ Sales = 4.1

The sports business had a negative EBITDA of INR 372 million in FY16. The company had guided for sports losses of ~INR 1billion for FY17. Hence the divestment is expected to increase Zee’s EBITDA by ~INR 1billion annually. Consequently, the share price for ZEEL has increased by 14% since the announcement of the transaction in the last week of August 2016.

deal of the month october aurum

Zee Group Perspective

Zee’s sports business contributed approximately 15% to revenues at INR 6,300 million and incurred an EBITDA loss of INR 350 million in FY16. The deal is being seen as a positive for Zee Group. The management had indicated that expectations from sports business margins remained in single digits, which would be dilutive to the consolidated margins of the company. Thus, the exit made economic sense. The unimpressive revenue growth of – 2.1% FY14-16 CAGR and cumulative sports losses of INR 1,591 million in the past two years have served as drivers for the sale.

Zee Group is expected to use some portion of the proceeds towards increased investments into the live entertainment and digital businesses or would consider returning the deal proceeds to shareholders either in terms of cash or early redemption of preference shares.

Sony Pictures Networks Perspective

The deal would help Sony get a foothold in the African and Middle East markets where Ten Sports has a sizeable presence. SPN’s biggest competitor Star Sports, a unit of Rupert Murdoch’s 21st Century Fox, owns rights to home cricket matches for India, Australia, England and also the International Cricket Council-organised World Cups. SPN’s acquisition will make it difficult for a third challenger to emerge as most prize properties will be locked for three-four years. Neo Sports, which also runs sports channels in India, doesn’t have any significant properties.

SPN sports properties include cricket (IPL, CPL, Ram Slam), football (FIFA 2018 World Cup Russia, UEFA Euro 2016, FIFA World Events including FIFA U-17 World Cup 2017 in India, European and South American Qualifiers for FIFA WC 2018, FIFA Confederations Cup, LaLiga, Serie A, FA Cup, Copa America Centenario, International Champions Cup), tennis (Australian Open, ATP 1000 and 500 World Tour Events, Champions Tennis League), fight sports (TNA, UFC, Pro Wrestling League), basketball (NBA) as well as NFL and Premier Futsal.

Statements by Key Personnel

NP Singh, CEO, Sony Pictures Networks India: “I welcome TEN Sports to the Sony family. The acquisition of TEN Sports Network will strengthen SPN’s offering for viewers of cricket, football and fight sports, complementing our existing portfolio of international and domestic sporting properties. It also aptly demonstrates SPN’s commitment to providing a broad range of sporting entertainment to fans across India and the sub-continent.”

Punit Goenka, Managing Director, Zee Entertainment Enterprises Limited (ZEE): “This is a landmark deal for ZEE and a step towards a strategic portfolio shuffle as we grow our general entertainment business both in the domestic and overseas markets. While we have grown our sports business over the last 10 years through acquisition of content at competitive prices, our focus now is on transforming ourselves into an all-round media and content company, comprising of five verticals, viz. broadcast, digital, films, live events, and international business; and we continue to move rapidly”

Disclaimer: Aurum Equity Partners LLP was not a part of this deal in any way.