PROPOSED ACQUISITION BY
AVUSA OF UNIVERSAL HIRT &
CARTER (“UHC”)
14 October 2010
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What is UHC ? 1
One-stop retail and FMCG marketing solution, including:
•
Largest intellectual capital database in the country of FMCG graphics
•
Holistic through-the-line marketing solutions business.
•
Retail advertisement monitoring service.
•
Photographic, litho, silk screen facilities.
•
Design and production of POS material.
•
Marketing, advertising and promotions software.
•
POS solutions, self-adhesive labels, catalogues, business forms.
•
High volume printing of magazines and directories.
www.avusa.co.za
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What Is UHC ? 2
UHC’s attributes are as follows:
•
Market leader with significant penetration into SA’s leading marketing
brands.
•
Privately owned diversified media business operating mostly in retail, FMCG
and related markets at the marketing planning stage.
•
Country’s largest FMCG and retail marketing solutions.
•
Operator in below-the-line and point-of-sale (“POS”) markets.
•
Principal shareholders are the Mehta family and Colin Cary (BEE compliant).
•
Strong management team.
•
Large operation with a strong, resilient revenue base (with entrenched
clients), operating margins and cash flow.
www.avusa.co.za
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What Is UHC ? 3
UHC’s attributes are as follows:
•
The acquisition is earnings-enhancing for Avusa (before considering merger
benefits).
•
Operates in markets least affected by economic cycles
•
Portion of the UHC business unlikely to be diminished by move to digital in
publishing (e.g. POS and labels).
•
Intellectual capital created through high level of strategic integration with
country’s leading brands and retailers.
www.avusa.co.za
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Key Investment Considerations & Drivers
The following were the key investment drivers considered when assessing the
UHC acquisition:
•
Strategic fit.
•
Customer intelligence and relationships.
•
Quality of revenue, operating margin and cash generation.
•
Diversity of revenue streams and profits for an enlarged Avusa.
•
Positions Avusa for further growth in existing and new markets.
•
Innovation.
•
Integration opportunities with the Avusa business.
www.avusa.co.za
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THE RETAIL OPPORTUNITY
Traditional print above-the-line
TOTAL PRINT MARKET SIZE
c.R9bn
Inserts market (incl. in above-the-line)
c.R1bn
current market where
Avusa plays
TOTAL:
c.R16bn
Traditional print below-the-line c.R6bn
Pre-media for OPI’s and knock & drop
c.R1bn
Below the line
current market
www.avusa.co.za
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Retail Dominates Spend
VALUE : R9bn
* Retail and FMCG represent 45% of
market
www.avusa.co.za
Source: Adex Jan - Dec7
Print Markets
Above-the-line
UHC
Pre-media
UHC
Pre-media
UHC
Avusa
Printing
UHC
Publishing
UHC
Printing
Point of
Sale
Below-the-line
www.avusa.co.za
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Valuation and Intangibles
• Tangible assets are not reflective of businesses of more than 30
years (Sunday Times and subscribers)
• UHC has brands, entrenched customers and growing sustainable
earnings
• The acquisition also brings the earnings of intellectual capital
currently not capitalised on the balance sheet (Sunday Times brand
and subscribers)
• The UHC business was valued using DCF, P/E ratio, EV/Ebitda
ratio in determining fair value
www.avusa.co.za
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Funding
• How is the deal funded
• Cash + Avusa equity
• Raised short term debt
• Ambition to repay debt in 2-3 years
• Funding considerations
•
•
•
•
•
Printing press investments
Dividend
Minor acquisitions
Replacement plant and equipment
Digital projects
www.avusa.co.za
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Directory Advertising
• Contract period ends in 2013
• TRUDON revenue as a percentage of UHC 2010 revenue is
about 10% and PAT below 10%
• TRUDON revenue as a percentage of combined AVUSA & UHC
2010 revenue is below 3%
• Estimated TRUDON PAT as a percentage of combined AVUSA &
UHC 2010 PAT is below 5%
• UHC has a12 year history of printing the directories – no disputes
between parties during this period
• UHC has market advantage on product quality, competitive
pricing and strong relationships with TDS
www.avusa.co.za
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Value Proposition Of Transaction
Heading
Comment
Introduces a BEE shareholder
• Will hold approximately 16.5% of Avusa following the transaction
• Agreed to a 3-year lock in and remaining black controlled
Acquisition at a lower PE than
Avusa
• Purchase price of R800m represents PE
• June 2011 of 7.28 warranted
• Compares favourably with Avusa
• 12.6x at the deal price of R22.50 per Avusa share
Target in net cash position
• Ungeared
Cash generative and resilient
earnings
• Proven resilience of earnings during recent downturn
Offers new revenue streams for
Avusa
• Significant presence in pre-media and printing thus extending Avusa’s presence
in all work-streams of above the line advertising (pre-media, printing and
publishing)
• In addition, the point of sale offering gives Avusa new access to below the line
advertising
• Entrenched retail and FMCG client base
Quality management and
reputable company
• Top-tier quality owner managers with extensive and recognised expertise
• In-depth second tier management, fully involved in the team and will be
secured through 2-year service and restraint contracts
Favourable transaction terms
• By structuring the settlement consideration as 50% shares, 50% cash
• Significant stake in Avusa (16.5%) results in the current owners “tied-in”
and committed to the fortunes of Avusa for at least the medium term
• However, the cash component caps the dilutionary impact of the deal on
the holdings of current Avusa shareholders
www.avusa.co.za
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