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Is ITV about to pay £3bn for Endemol?
Free-to-air broadcaster ITV (ITV) is widely reported to be in the bidding for independent production business Endemol Shine with a mooted price tag of £3bn.
Probably most famous for creating the Big Brother series, Endemol is also behind TV hits like The Fall, Peaky Blinders and MasterChef.
Two factors lend credibility to the reports; one is the link with ITV’s chairman Peter Bazelgette who was previously chief creative officer and UK chair of Endemol.
The second is new ITV chief executive Carolyn McCall’s emphasis on continuing a strategy pursued under her predecessor Adam Crozier of diversifying away from volatile TV advertising revenue by boosting the company’s ITV Studios production arm.
Structural trends in the television market, particularly the demand for content from streaming services like Amazon Prime Video and Netflix, make this a logical plan and in 2016 the company made an ultimately failed bid for the owner of Peppa Pig, Entertainment One (ETO).
ITV’s production arm is already growing, with revenue up 16% in the first half of the year, but in terms of external revenue, i.e. for those shows not sold directly to ITV itself, it still represents only around a third of the business.
Buying Endemol could therefore be a short-cut to rapidly increasing the scale of ITV Studios but it would represent a very bold move by McCall early in her tenure. It would likely require ITV to raise a lot of new money, plus it would be acquiring a company in a weak financial position.
Currently owned by private equity firm Apollo and 21st Century Fox, Endemol is heavily indebted and made an operating loss of £18.7m in 2017.
Analysts at Macquarie note big content deals like this rarely create value as it is difficult to retain the talent behind said content once earn-out periods have expired.
Their counterparts at Deutsche Bank comment: ‘The valuation looks challenging for an asset with a mixed recent operating performance, other bidders have already walked away, and the deal would involve a material increase in leverage and/or a capital raise.’ (TS)