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transcript
Confidential
January 2014
PRELIMINARY | SUBJECT TO FURTHER REVIEW AND EVALUATIONThese materials may not be used or relied upon for any purpose other than as specifically contemplated by a written agreement with Credit Suisse AG or its Affiliates (hereafter “Credit Suisse”).
Channel 5
Discussion materials
Confidential
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Credit Suisse is one of the most active advisers in the media sector in Europe
1
Key examples of Credit Suisse expertise across all media sub-sectors
Pay-TV / cable / IPTV De Agostini acquisition of Zodiak Sole advisor on merger of Showtime and Orbit Mandated on Digiturk IPO Swisscom acquisition of Fastweb Sale of Premiere stake by Unity Media IPO of Premiere IPO of Neuf Cegetel IPO of Versatel
Sole Bookrunner in ITV bond Broker to ITV Acquisition of ATV – Sabah by Calik Acquisition of Zodiak by De Agostini IPO of Media Capital Antena 3 listing IPO of Endemol and subsequent acquisition financing KKR / Permira acquisition of ProsiebenSat1 Acquisition of Alliance Films by Entertainment One
FTA TV / content
Internet Sale of Ogone to Summit Partners Sale of Friends Reunited to Brightsolid IPO of Moneysupermarket.com Sale of Venere to Expedia Sale of Gate5 to Nokia Acquisition of Poliris (leading French property portal) by 3i 123 Multimedia IPO
Professional publishing / business information
Adviser on sale of UBM Data Services division Advisor on the acquisition of a majority stake by Hellman & Friedman in
Wood Mackenzie Adviser on sale of Cerved Adviser to Seat on sale of WLW to Bisnode Broker to UBM and DMGT Adviser and sole MLA on the acquisition of Bureau van Dijk for BC Partners
Capital Radio / GWR merger Lead financial advisor to GCap Media plc on its sale to Global Radio
Sole Bookrunner in Controlinveste exchangeable bond Acquisition of ATV – Sabah by Çalik Sale of Süddeutscher Verlag IPO of Vocento Axel Springer / ProSiebenSat1 financing Active on many other deals such as DMGT / Northcliffe
Newspaperpublishing
Radio
Selected media transactions
Financing and IPO transactions
€6,630,504,000
July 2007
Snr. Sec. Facilities €501,378,000 Mezz. FacilityMandated Lead Arranger and Joint Bookrunner
Acquisition byand
Initial Public Offering€334,000,000
November 2006
Joint Global Coordinator and Joint Bookrunner
July 2011
Acquisition of BvD by Charterhouse and related financingFinancial Advisor and Joint Bookrunner
€940,000,000
Initial Public Offering
£168,000,000
Joint Global Coordinator
April 2011
M&A transactions
£375,000,000
June 2008
Sale of GCap Media plc to Global Radio
Lead Financial Advisor and Broker to GCap Media plc
£25,000,000
March 2010
Sale of Friends Reunited
Exclusive Financial Advisor to ITV
Undisclosed
July 2009
Merger of Showtime Arabia and the Orbit Group of CompaniesExclusive Financial Advisor on the merger
£1,100,000,000
July 2012
Acquisition of a majority stake in WoodMackenzie by H&F Financial Advisor to H&F
C$225,000,000
January 2013
Acquisition of Alliance Films by Entertainment One
Financial Advisor to Entertainment One
$3,300,000,000
May 2011
Acquisition of Warner Music by Access Industries
Lead Financial Advisor to Access Industries
October 2009
Convertible bond
Joint bookrunner
£135,000,000
£160,000,000Sale of UBM Data Services division to Electra Partners
February 2013Financial Advisor
€780,000,000
January 2013Lead Left Bookrunner
High Yield financing for Cerved LBO by CVC
€3,300,000,000Acquisition of Springer Science + Business Media by
July 2013
Financial Advisor and financing bank
$1,591,000,000€615,000,000Senior secured First Lien Term Loan
July 2013Lead Left Bookrunner
€1,300,000,000
Secondary public offering
April 2013Joint Bookrunner
Confidential
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Credit Suisse was involved in some of the highest profile transactions of 2013
2
EMEA rankings based on deals announced
Key M&A awards
Credit Suisse deal highlights
$3.9bn
Acquisition of the remainder in MAN SE
Pending
Financial Advisor
$24.4bn
Merger with Virgin Media
2013
Financial Advisor
$2bn
Merger with Sorouh Real Estate
2013
Financial Advisor
$4bn
Merger with Atlantia SpA
Financial Advisor
$2.2bn
Unsolicited bid for 44% of the company by a Kazakh consortium
2013
Financial Advisor
Pending
$2.9bn
Acquisition of the remaining 49% in Itera Oil & Gas from Itera OGK
2013
Financial Advisor
$4.4bn
Acquisition of a Springer Science+Media
2013
Financial Advisor
$3.9bn
Sale of the company by DLJ and TPG
Pending
Financial Advisor
$2.5bn
Sale of Mozambique oil & gas assets to ONGC
Pending
Financial Advisor
$982 $797 $697 $656 $559 $533 $532 $474 $452 $423
27.8
22.619.8
18.615.8 15.1 15.1 13.4
12.8 12.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
0
200
400
600
800
1,000
1,200
GS MS DB JPM CS Barcl Citi Roth BAML UBS
Value ($bn) Mkt. share
Best M&A House Western Europe
Best M&A House in the Emerging Markets
Consumer Advisor of the year
Iberia Advisor of the year
Domestic deal of the year RBS/Worldpay
Austria and Switzerland Advisor of the year
2011 and 2013
Source: dealogic based on deals announced since 2008.
Confidential
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3
Leading UK M&A house with an unrivalled depth of experience across a range of complex situations
Credit Suisse has a strong record advising its UK clients on transformational acquisitions and disposals…
Our non-UK clients seek our expertise in cross border deals into the UK
Credit Suisse also has extensive experience advising on private equity transactions
…as well as bid defence and sellside roles
Defence / sale
Cross border acquisitions
£860m
Sale of Company to
Financial advisor2011
£2.4bn
Sale of Company to
Financial advisor2011
£2.9bnSale of Company
to
Financial advisor2010
$24.1bnAcquisition of
Financial advisor2013
£3.4bnAcquisition of
Financial advisor2013
£97.6bnDefence from an unsolicited offer
from
Financial advisor 2008
Sponsor M&A
£1.4bnAcquisition of
Financial advisor2012
$4.4bnAcquisition
Financial advisor2013
$4.4bnAcquisition of Mey Icki from
Financial advisor2011
$1.0bnSale of
to Itochu
Financial advisor2011
£500mSale of KP Snacks to
Financial advisor2013
Sale of Company to
Financial Advisor2012
$3.6bn
Acquisition of
Financial Advisor2012
$2.0bn
Packaging
£3.2bnAcquisition of
2013Financial Advisor
£340mAcquisition of
Financial advisor2013
£1.6bnAcquisition of
Financial advisor2013
Acquisitions, disposals and mergers for UK clients
$26.8bnSale of BP’s 50%
stake to
Financial advisor2013
Merger with
Financial Advisor2013
$48.5bn$3.3bnAcquisition of
Division of
Financial advisor2013
$4.4bnSecured majority
control of
Financial advisor2012
Joint acquisition of
with GVC
Financial Advisor2013
$800m$2.6bn
Acquisition of 20% of
Financial advisor2013
£6.4bn
Buy-out by founders
Financial Advisor2013
€850mAcquisition of
Financial advisor2013
Confidential
1. Snapshot of Channel 5
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Confidential
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Snapshot of Channel 5
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Company overview
Key programmes
Business overview
The group’s original channel, Channel 5, is the fifth and final national terrestrial analogue network to launch, after BBC One, ITV, BBC Two and Channel 4− As a free-to-air TV broadcaster, it mainly broadcasts entertainment
programming, such as reality television, game shows and imported American drama
− It is the fifth most popular channel in the UK, claiming a 4.2% share of viewing throughout 2012
− In a typical month the channel reaches 45 million people− In 2012, Channel 5 accounts for 7.3% of TV advertising revenues
in UK(1)
The group also owns two digital channels, 5* and 5USA, which were launched in 2006− 5* targets16–34 year-old viewers with a mix of soaps, movies,
entertainment, drama and documentaries− 5USA brings UK viewers the best American drama series and
classic American action movies Other offerings include Channel 5’s video-on-demand service
Demand 5, providing viewers with online access to much of the channel’s peak time schedule − Channel 5 is the first UK terrestrial broadcaster to offer a download
service− The catch-up service is available on a range of platforms including
web (e.g. Demand 5 website, YouTube), television (e.g. BT Vision, Sky, YouView), game consoles and mobiles
Source: Company filings, press release.(1) Ofcom Communications Market Report 2013.
Founded: 1997
Headquarter: London, UK
Ownership: Wholly-owned subsidiary of Northern & Shell
(owned by British publisher Richard Desmond)
Key financials: 2012A revenue: £326 / €400 million
2012A EBITDA: (£4) / (€4.9) million
Big Brother
Group’s channels
Confidential
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Key strategy
6
Multi-channel approach
The group owns a portfolio of channels with different focus
− Channel 5 provides viewers with a varied mix of programming which includes entertainment, sport, documentaries, kids, drama, News and films
− 5* provides pre-school shows under the Milkshake! Banner as well as dramas, films, soap operas and popular factual and lifestyle shows
− 5USA offers drama, films, sport, comedy and youth programming from the US
Brand defining content
A key strategic goal is to increase revenue streams through the development, ownership and exploitation of programming content
− A number of shows developed and co-produced internally and increased resources earmarked to be allocated to the in-house production business (e.g. News service brought in-house in 2012)
− Increased investment in the programming schedule on brand defining content with appeal to both audiences and advertisers (e.g. the most successful commission Big Brother secured in 2011)
Digital platform
The group continues to invest in digital platforms and is well placed to respond to technology-driven changes in viewing preferences
− c.2 million downloads of the Demand 5 iPad App and over 1 million downloads of the Xbox App since 2011
− Launch of Demand 5 on Windows 8 and Samsung connected TVs in 2013
− Major partner in the YouView consortium, the next generation of internet protocol digital terrestrial television service
Confidential
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Paul DunthorneChief Operating Officer
Nick BamptonDirector of Commercial Sales
Ben FrowDirector of Programmes
James TatamDirector of Digital Media
Channel 5Management and key decision makers
7
Former Managing Director at N&S’ TV business Portland TV Has worked at N&S for more than 15 years and promoted as Channel
5 COO in November 2012
Re-joined Channel 5 in November 2011 Former Director of Programming at Irish broadcaster TV3; other
extensive working experience includes Channel 4, BBC and ITV
Re-joined Channel 5 in November 2010 Former Managing Director at Viacom Brand Solutions and founder of
media start-up The Third Way
Held senior positions at Channel 4 and BBC, focusing on digital platform development
Richard DesmondFounder and owner of Northern & Shell
Robert SandersonFinance Director of Northern & Shell
British publisher and businessman Has been media entrepreneur throughout his working life; founded
Northern & Shell in 1974 at age of 21 and since then he has developed the group into all main sectors of specialist and consumer publishing as well as television, radio, book publishing and internet activities
Joined Northern & Shell in 1995 as Financial Controller, became Deputy Finance Director in 1998 and took up his present position since 1999
Previous work experience includes Financial Accountant at Reuters Group, Grant Thornton and international PR company Shandwick
Key management
Key decision makers at N&S
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Key historical financials
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Revenue EBITDA(1)
EBIT(1) Net income(1)
344
272290
356
326
2008 2009 2010 2011 2012
12.2
3.6
13.1
39.9
(4.0)
2008 2009 2010 2011 2012
0.4
(8.5)
0.3
27.0
(16.6)
2008 2009 2010 2011 2012
(18.3)(12.0)
17.9 26.9
(26.2)
2008 2009 2010 2011 2012
Source: Company filings (Channel 5 Broadcasting Limited). (1) Pre exceptional expense. EBITDA reported post operating lease rentals and foreign exchange gains / (losses).(2) Source: Financial Times, 1 January 2014.
(FYE Dec, £ millions) (FYE Dec, £ millions)
(FYE Dec, £ millions) (FYE Dec, £ millions)
Financial performance in 2012 negatively impacted by certain high profile events in the year, particularly the Olympics, Paralympics, Euro 2012 and the Queen’s Jubilee, all of which were the broadcasting preserves of the BBC or other principal commercial rivals
The performance in the early part of 2013 (H1 2013 EBIT of £20.6m(2)) underlines the directors’ firm belief that the business has been positioned for growth
Confidential
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UK audience viewing shares evolution
9
As the fifth largest TV broadcaster in UK, Channel 5’s viewing shares have remained stable over the last three years
Source: BARB.
–
5%
10%
15%
20%
25%
30%
Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13
BBC 1 BBC 2 ITV (Inc. HD & +1) Channel 4 (Inc. S4C & +1) Channel 5 (Inc. +1)
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UK TV advertising revenue by share
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Channel 5’s shares in terms of advertising revenue have slightly increased
Source: Ofcom Communications Market Report.Note: denotes Channel 5 power ratio.(1) Includes: ITV2, ITV3, ITV4, ITV breakfast, E4, More 4, Film 4, 5*, others.
35.1% 36.5% 34.2% 34.2%
17.2% 17.2% 16.2%
15.0%
6.6% 6.2% 7.8% 7.3%
25.1% 23.6%
24.8% 25.5%
16.0% 16.5% 17.0%
18.0%
–
10%
20%
30%
40%
2009 2010 2011 2012
ITV1 / STV / UTV Channel 4 / S4C Channel 5 Other multichannels PSB portfolio channels
1.4x 1.4x 1.9x 1.7x
(1)
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UK advertising expenditure
11
Television continues to account for a significant part of advertising expenditure in UK
26.1%
26.4% 27.8% 27.5%
26.6% 26.4% 26.0% 25.6%
39.4%
34.4%
31.3%
27.9%
24.4% 22.1%
20.6% 19.5%
23.0%
27.7% 29.4%
33.3%
37.0%
40.2% 42.2%
43.8%
11.5% 11.5% 11.5% 11.3% 11.9% 11.3% 11.2% 11.1%
–
10%
20%
30%
40%
50%
2008 2009 2010 2011 2012 2013 2014 2015
Television Newspapers and magazinesInternet Others (Outdoor, radio and cinema)
Source: Zenith report as of September 2013.
CAGR
'08 - '13 '13–'15
TV 0.7% 1.5%
Newspapers and magazines
(10.6%) (3.2%)
Internet 12.2% 7.7%
Others 0.1% 1.9%
Confidential
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6.0% 6.2%
5.0%
3.2%
6.8%
Q1-14 Jan-14 Feb-14 Mar-14 2014E
TV advertising net revenue growth (y-o-y%
change)
Research is optimistic about European ad markets
12
Advertising Monitor
2012 2013E 2014E
Germany 1.5 3.0 3.0
UK 0.6 3.1 6.8
France (7.0) (4.0) 2.8
Italy (11.0) (10.5) 4.0
Spain (18.0) (5.5) 11.3
Norway NA 7.0 5.0
Russia 10.3 8.0 7.0
Belgium NA 3.0 3.0
Source: Credit Suisse proprietary survey (European advertising monitor, December 2, 2013).Note: European Advertising Monitor research report from Credit Suisse is frequently publish by our analysts and it talks about
advertising trends in Europe. It is a proprietary survey of European TV media buyers that includes feedback from 20 agencies in 8 territories.
UK media buyers report broad-based strength in the TV advertising market going into 2014
− Growth is expected to accelerate vs. 2013 driven by the strengthening economy and the World Cup
− Advertisers are “responding to positive economic indicators” in Q1 2014, which is giving them confidence to invest at the start of the year
Confidential
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Sale of Channel 5 to Northern & Shell
13
In July 2010, RTL Group, the leading European entertainment network, announced the sale of Channel 5 to the Northern & Shell company owned by British publisher Richard Desmond
− Channel 5 experienced significant revenue and profit decline relative to the market in 2008 and 2009; the company underwent a comprehensive restructuring process at the time of sale
Rival bidders were Channel 4, Time Warner and Endemol
Transaction documentation signed and closed with immediate effect on 23 July 2010
Total cash consideration payable to RTL Group for its 100% shareholding amounted to £103.5 million (€125 million)
− The deal valued Channel 5 at LTM revenue multiple of 0.4x and LTM EBITDA multiple of 12.4x
Source: Company information.
Confidential
2. M&A considerations
14
Confidential
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Situation overview
15
Northern & Shell appointed Barclays to advise on a potential sale of Channel 5
− Process led by Matthew Smith (MD, Head of UK M&A) and Daniel Ross (MD, EMEA IBD Media and Leisure)
Process expected to be a competitive auction, possibly a two-stage process
− NDAs expected to be distributed at the end of January to early February and subsequent distribution of Information Memorandum
− Marketing materials (including Information Memorandum) largely prepared already, now awaiting final version of 2013 numbers to insert
Signing expected prior to the summer break (see timeline overleaf)
Interest so far from a broad array of bidders, although private equity seen to be relatively reluctant
1
2
3
4
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Illustrative timetable – Key milestones
16
Receive NDA
Select biddersinvited to Round II
First round bids due
Receive second round process
letter
Management presentation / site visit
Detailed due diligence
Receive draft SPA
Submission ofbinding bids and
transaction documents
Final negotiations
Signing ofSPA
February March April May June
3 10 17 24 3 10 17 24 31 7 14 21 28 5 12 19 26 2 9 16 23
Phase I
Phase II
Finalnegotiationand signing
Receive IM and process letter
Confidential
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17
Summary overview of typical two stage auction process
Review and discuss strategic fit of acquisition opportunity
Perform desktop due diligence
Seek intelligence and review competitive landscape
Consider pre-emptive bid Consider potential partnership Set-up internal project team Hire external advisors Negotiate and sign
confidentiality agreement
Review of Information Memorandum
Potential clarification calls with company
Develop business plan and perform valuation of business
Assess synergy potential and start developing integration plan
Develop financing structure and obtain financing support letters
Conduct preliminary anti-trust analysis
Identify key confirmatory due diligence
Obtain required internal approvals
Attend management presentation and Q&A/expert sessions
Written Q&A process Perform site visits Review vendor due diligence
reports (if made available) Review data room Secure financing SPA mark-up and initial SPA
negotiations Finalise business plan and
valuation Finalise anti-trust analysis Agree on bid tactics (offer
price vs. SPA terms) Obtain Board approvals
Review of ‘black box’ information (if applicable)
Final price and SPA negotiations
Review and finalise disclosure schedules
Draft transaction announcement
Sign financing arrangements Signing of transaction
Confidentiality agreement First round bid Financing support letters
Binding offer Binding financing
commitments SPA mark-up
Final SPA Final financing documents
Phase II(6-7 weeks)
Phase I(4-5 weeks)
Negotiation and signing
(1-2 weeks)
Ke
y w
ork
str
ea
ms
Ke
y d
ocu
me
nts
fr
om
bid
de
rs
Preparation
Note: Actual timetable depends on target’s sale process.
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Where Credit Suisse adds value
18
Project coordination
Overall co-ordination of the process and advisors
Main point of contact for the process
Sole interface with the seller’s advisors
Co-ordinate business, commercial, financial, legal and other due diligence / act as central point of contact for VDR and Q&A process
Negotiation support
Develop negotiation strategy
Interface for negotiation with the seller and its financial advisors
Review of transaction documentation and support in negotiating the key commercial items
Assess competitive landscape
Monitor competitive landscape / provide intelligence
Affordability analysis of key competitors
Financial model and valuation
Preparation of financial model (stand-alone and synergy analysis)
Indicative valuation of Channel 5 as well as value of the synergies
Sensitivity analysis to allow for various business plan scenarios
Conduct other relevant financial analysis
Financing Evaluate various financing alternatives
Support in structuring the financing of the transaction
1
2
3
4
5
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Key due diligence questions
19
Market overview and competitive landscape
Outlook for the advertising market in UK and key trends / drivers of advertising market forecast growth
Trends on FTA share of total advertising in UK
Current competitive landscape and expected changes in the medium to long term (consolidation etc.)
Channel 5’s position in the market and expectation for market share evolution
FTA business
Channel 5’s content, target audience and age group; reach of Channel 5 in the market
Source of program contents: does it source from various content providers or depend on a selected few
Control over contents and security over key contracts (e.g. Big Brother expiration at end of 2015)
Scope of contracts with content providers and relevance of revenue distribution model is there is any
Purchasing / pricing power in the market
Proportion of local and international content
Scope and contribution of the digital businesses
Talent management and retention
Regulations and legal
Expiration of broadcasting licenses and the renewal fee and terms if there are any
Relationship with industry regulators
Any significant legal cases that have in the past affected or currently impacting the business
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3. Potential buyer analysis
20
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Potential competing buyers: Strategics
21
Buyer name Market cap Key comments
£8.4bn
Again, very focused on international expansion and likely to take a serious look Has not made significant international steps so far
Gerhard Zeiler knows the business very well from RTL (in fact he signed the sale to N&S), however, would be open to re-investment now at Time Warner)
Time Warner is very active on European investment opportunities
Possible interest
Likely to show interest, but still not in an ideal position to explore significant international acquisitions
Jeff Shell now returned to US
Regulatory issues likely to be insurmountable
Has been keen on international expansion over time, but never shown real willingness to make sizeable investment
Likely to show strong interest in early stages
Source: Company information, FactSet as of 21 January 2014.
Possible interest, especially given UK TV investment FTA not previously a priority
EV EV/EBITDA FY1
£9.0bn 12.4x
£22.4bn £25.2bn 10.4x
£24.8bn £30.7bn 11.0x
£36.8bn £47.5bn 9.8x
£16.8bn £20.4bn 12.6x
£86.1bn £111.6bn 8.1x
£6.7bn £7.5bn 10.3x
£13.6bn Interest in multi-channel content business and not just a pay-TV platform Defensive move against BT
£14.3bn 8.3x
£44.8bn Possible interest, notably given Sky presence£53.6bn 12.0x/
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Potential competing buyers: Strategics (cont’d)
22
Buyer name Market cap Key comments
£11.9bn
Has sold out of most international assets Will likely take a cursory interest, but not likely to be a key bidder
Will certainly look at the asset and has considered FTA option. However, unlikely that Channel 5 would be additive to BT proposition
Likely to pass
Has not shown serious interest in FTA in the past and continues to focus on internal issues
Unlikely to be of interest
Is interested in international expansion as evidenced by Chellomedia, but Channel 5 likely to be a step too far
Virtually impossible, given previous troubled ownership by RTL
Possible interest, but unlikely to be very serious: focused on Scandinavia and Eastern Europe
Source: FactSet as of 21 January 2014.
Very unlikely buyer
EV EV/EBITDA FY1
£13.5bn 12.3x
£2.1bn £1.8bn 9.5x
£6.2bn £7.5bn 10.8x
£3.6bn £6.2bn 14.8x
£30.1bn £43.5bn 7.0x
£2.9bn £3.4bn 15.7x
£114.3bn £72.9bn 5.6x
£3.1bn £4.1bn 11.0x
£0.8bn £1.0bn 11.1x
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Potential financial sponsor buyers
23
Sponsor name Fund size
£8.3bn
£5.4bn
£4.5bn
£8.3bn
£4.5bn
£1.8bn
£4.8bn
£2.6bn
£5.6bn
£3.9bn
£9.3bn
£4.0bn
£16.6bn
£9.4bn
£7.5bn
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Comment Sponsor name Fund size Comment
Very media focused although with limited recent success
Media investments include: Sportfive, Primacom, Thomson Directories, AVIP Group, Equinity, Skillsoft, Avisium
UK based fund with significant experience in media, although with some mixed results
Media investments include: Springer, Medimedia, Aprovia, IPC, Newsquest, Truvo, Ziggo, Numericable
Recently sold Cerved, but still looking for media exposure
Media investments include: The Weather Channel, AMC Entertainment, Sinomedia Holding, Publishing Group of America, Cerved
Media investments include: Trader Media Group, Seat Pagine Gialle, BvD
Has shown interest in cable pay TV assets
Re-focusing attention on media at present and has identified data / growth assets as interesting area
Media investments include: Nielsen, Montecito, The Weather Channel, Houghton Mifflin, Livewire
Proven track record in the media sector Media investments include: All3Media,
ProSiebenSat.1, Asia Broadcast Satellite (ABS), Premiere
Less active in media in recent years but still over all active in the market
Media investments include: Aprovia, Health Central Network, LBI International, Nielsen
Focus in media directed more towards professional information and B2B type assets
Media investments include: TSL, TDF, Wood Mackenzie, Bureau Van Dijk
Very intelligent and innovative investor in media Was involved in Informa process in 2008 Media investments include: Axel Springer, Wood
McKenzie, F1 Holdings, ProsiebenSat1, Advanstar, Eller Media Company, Nielsen
Remains very active in media and looks for unique situations, has FTA experience
Media investments include: ProSiebenSat.1, BMG Rights Management, Primedia, Seven Media Group, Nielsen
TMT focused fund has shown keen interest in SBS and is a keen investor in content assets
Media investments include: JBP Holdings, Warner Music Group, Zenimax Media, RCS Media Group, Digiturk, MGM
Has historically tried to acquire ITV, however recently downgraded interest in Media following some challenging investments
Media investments include: Emap B2B, Trader Media, ALM, Hit Entertainment
Significant exposure to Media and recent good exit from Springer
Media investments include: Gala TV, AcadeMedia, Blizoo, United Digital Group, Springer Science + Business Media
Very limited attention to media in Europe Media investments include: Primedia, Adknowledge,
MGM, TDF, Univision, Findexa, IMS
Most focused on data and online assets, not really a media investor per se
Media investments include: DB Corp., IDC, Tulip Media
£8.9bn Looked seriously at SBS Media investments include: Nine Entertainment
Source: Company information, Preqin.
Confidential
4. Preliminary valuation considerations
24
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Channel 5 – Key financials
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(in £ millions) Historical financials Forecasts
Fiscal year ended Dec 31 2010A 2011A 2012A 2013E 2014E 2015E
Revenue 289.7 356.3 325.7 332.2 338.8 342.2
% growth 6.5% 23.0% (8.6%) 2.0% 2.0% 1.0%
Normalized EBITDA 13.1 39.9 (4.0) 45.0 46.7 47.9
% margin 4.5% 11.2% (1.2%) 13.5% 13.8% 14.0%
D&A 12.8 12.9 12.6 12.8 13.1 13.2
% of revenue 4.4% 3.6% 3.9% 3.9% 3.9% 3.9%
Normalized EBIT 0.3 27.0 (16.6) 32.2 33.6 34.7
% margin 0.1% 7.6% (5.1%) 9.7% 9.9% 10.1%
Capex 5.2 6.0 3.5 5.0 5.1 5.1
% revenue 1.8% 1.7% 1.1% 1.5% 1.5% 1.5%
Changes in NWC 59.6 (3.4) 1.8 (0.5) (1.1) (0.6)
% changes in revenue 5.1% 6.0% 7.5% 17.0% 17.0%
Source: CS IBD estimates.(1) Net working capital includes the following line items: current asset (program inventory, trade debtors, prepayments and accrued
income); current liability (trade creditors, other taxation and social security, accruals and deferred income and other creditors). (2) Source: Zenith report.
Key assumptions
Financial forecasts based on CS assumptions
Channel 5 to return to profit in 2013 with EBITDA of £45m
Revenue for 2013 – 2015 assumed to grow at the same rate with UK TV advertising market(2)
EBITDA margin to improve moderately in 2014 and 2015
Capex equal to 1.5% of revenue
Net working capital equal to 17% of revenue
(1)
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Enterprise value 300 350 400 450 500 550 600
Implied EV multiples Metric
EV/Revenue 2013E 332 0.9x 1.1x 1.2x 1.4x 1.5x 1.7x 1.8x
EV/Revenue 2014E 339 0.9x 1.0x 1.2x 1.3x 1.5x 1.6x 1.8x
EV/Revenue 2015E 342 0.9x 1.0x 1.2x 1.3x 1.5x 1.6x 1.8x
EV/EBITDA 2013E 45 6.7x 7.8x 8.9x 10.0x 11.1x 12.2x 13.3x
EV/EBITDA 2014E 47 6.4x 7.5x 8.6x 9.6x 10.7x 11.8x 12.9x
EV/EBITDA 2015E 48 6.3x 7.3x 8.3x 9.4x 10.4x 11.5x 12.5x
EV/EBIT 2013E 32 9.3x 10.9x 12.4x 14.0x 15.5x 17.1x 18.7x
EV/EBIT 2014E 34 8.9x 10.4x 11.9x 13.4x 14.9x 16.4x 17.9x
EV/EBIT 2015E 35 8.7x 10.1x 11.5x 13.0x 14.4x 15.9x 17.3x
Illustrative acquisition matrix
26
(FYE Dec, in £ millions)
Comparable companies trading multiples - Median Comparable acquisition multiples - Median
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Overview of Trading Multiples as of 21-Jan-14 (in GBP millions, except share prices in local currencies; calendarised to YE 31-Dec)
Share % to Market Net Adj. Adj. EV/Revenues Adj. EV/EBITDA Adj. EV/EBITDA-Capex P/ECompany Price 52W H Cap. Debt EV 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E
Pay TVBSkyB 8.57 (9.9%) 13,641 1,236 14,291 1.9x 1.8x 1.8x 8.5x 8.3x 7.8x 12.0x 11.8x 10.9x 14.7x 14.3x 12.9x
Western EuropeAntena 3 / Atresmedia 13.96 (0.5%) 2,421 153 2,574 3.8x 3.6x 3.4x n.m. 27.2x 19.0x n.m. 34.1x 22.4x n.m. 38.7x 24.5xITV 2.05 (2.5%) 8,376 46 8,962 3.8x 3.6x 3.4x 13.9x 12.4x 11.4x 16.9x 13.6x 12.3x 19.0x 16.5x 15.0xM6 16.48 (9.0%) 1,706 (179) 1,527 1.3x 1.3x 1.3x 6.4x 6.1x 5.9x 9.5x 8.9x 8.6x 16.9x 15.9x 14.8xMediaset 3.81 (9.1%) 3,560 1,229 6,214 2.2x 2.1x 2.0x 20.6x 14.8x 11.4x 38.9x 22.5x 15.5x n.m. 31.1x 19.9xMTG 322.60 (12.1%) 2,115 122 1,797 1.4x 1.2x 1.2x 12.2x 9.5x 8.8x 13.7x 10.5x 9.7x 17.7x 15.3x 13.4xProSieben 35.00 (3.0%) 6,178 1,429 7,488 3.5x 3.3x 3.1x 11.6x 10.8x 10.2x 13.1x 12.2x 11.6x 19.0x 17.1x 15.9xRTL 93.90 (5.5%) 11,959 374 13,453 2.7x 2.7x 2.6x 12.7x 12.3x 11.5x 14.6x 14.1x 13.2x 20.2x 19.4x 18.3xTelecinco 9.27 (2.3%) 3,056 (70) 2,597 3.8x 3.6x 3.3x n.m. 25.7x 16.7x n.m. 28.3x 17.8x n.m. 36.8x 25.1xTF1 14.34 (4.3%) 2,501 (156) 2,300 1.1x 1.1x 1.1x 9.3x 9.2x 7.5x 11.2x 11.2x 8.8x 21.9x 22.9x 17.0x
Average 2.6x 2.5x 2.4x 12.4x 10.7x 9.5x 16.9x 13.3x 11.4x 19.1x 17.9x 15.7xMedian 2.7x 2.7x 2.6x 12.2x 10.8x 10.2x 13.7x 12.2x 11.6x 19.0x 16.8x 15.5x
Eastern EuropeCME 3.27 (50.9%) 267 501 770 2.0x 1.7x 1.6x n.m. 11.7x 9.3x n.m. 15.5x 11.9x n.m. n.m. 24.8xCTC Media 12.65 (9.3%) 1,196 (72) 1,123 2.2x 2.0x 1.9x 6.8x 6.4x 6.1x 7.3x 6.9x 6.6x 11.9x 11.7x 11.2xPolsat 19.40 (21.5%) 1,335 359 1,694 3.0x 2.9x 2.8x 8.5x 8.1x 7.7x 10.6x 9.9x 8.7x 14.0x 12.7x 10.8xTVN 14.80 (7.5%) 1,013 461 1,104 3.6x 3.5x 3.3x 11.1x 9.6x 8.3x 13.2x 11.3x 9.6x n.m. 17.6x 14.5x
Average 2.7x 2.5x 2.4x 8.8x 8.1x 7.4x 10.4x 9.4x 8.3x 12.9x 12.2x 11.0xMedian 2.6x 2.5x 2.3x 8.5x 8.1x 7.7x 10.6x 9.9x 8.7x 12.9x 12.2x 11.0x
Comparable European companies trading multiples
27
Source: Company information, Reuters consensus forecasts, FactSet as of 21 January 2014.(1) Average / median calculations exclude Antena 3 and Telecinco in Western Europe group and exclude CME in Eastern Europe
group, for comparability with the 2013E average / median.(2) Average / median calculations exclude Antena 3, Mediaset and Telecinco in Western Europe group and exclude CEM and TVN
in Eastern Europe group, for comparability with the 2013E average / median.
(1) (1) (2)
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Comparable acquisition multiples
28
Source: Company filings, broker research.
(£ in millions)
Ann't.
DateTarget Acquiror Stake Acquired Enterprise Value
LTM
EV / Revenue
1 YR+
EV / Revenue
LTM
EV / EBITDA
1 YR+
EV / EBITDA
Selected FTA Transaction Comparables
10/10/2013 e tv (Pty) Ltd SEARDEL INVESTMENT CORP. 19% 155 NA NA NA NA
07/04/2013 RRsat Global Communications Viola Group 20% 73 1.0x 0.9x 5.8x 5.5x
26/02/2013 Grupo Media Capital S.G.P.S. Vertix S.G.P.S. 10% 313 2.0x NA 8.9x NA
14/12/2012 SBS Nordic operation Discovery Communications 100% 1,078 NA NA 10.0x NA
03/10/2011 StarTV Dogus Yayin Group 100% 211 2.8x NA NM NA
08/09/2011 Bollore Canal+ 60% 244 NA NA NA NA
20/04/2011 Prosiebensat.1 Media AG Sanoma / Talpa 100% 1,083 3.0x NA 10.6x NA
15/11/2010 Telewizja Polsat Cyfrowy Polsat 100% 775 3.5x 3.3x 12.1x 9.8x
18/02/2010 bTV CME 100% 303 3.9x 3.9x 8.8x 8.8x
20/01/2010 Studio 1+1 Harley Trading Limited 100% 184 9.4x NA NM NA
23/03/2009 CME Time Warner 31% 1,755 1.8x 1.9x 6.5x 8.2x
31/07/2008 Nova Television Bulgaria MTG 100% 488 10.9x 9.2x NA NA
11/03/2008 DTV MTG 100% 197 8.3x 6.1x NA NA
15/12/2006 Prosiebensat.1 Media AG KKR/Permira 51% 3,938 3.0x 2.7x 14.0x 11.3x
27/06/2007 Prosiebensat.1 Media AG SBS 100% 3,300 NA 2.9x 14.8x 11.7x
29/08/2006 CME Apax 8% 1,472 5.3x 4.2x 17.2x 11.6x
26/10/2006 Grupo Media Capital Prisa 67% 480 3.2x 3.2x 15.9x 17.1x
03/11/2005 Grupo Media Capital Prisa 33% 557 3.9x 3.5x 19.8x 15.5x
26/09/2005 Star TV Dogan Yayin Holding 100% 255 NA 3.7x NA 21.5x
20/07/2005 Five RTL Group 35% 1,108 3.8x NA NA NA
11/08/2003 Prosiebensat.1 Media Saban Capital 36% 1,563 1.2x 1.2x 13.8x 12.0x
30/04/2003 Antena 3 de Television Grupo Planeta 25% 1,013 2.3x 2.1x 21.0x 13.2x
07/01/2003 Antena 3 Telefonica 12% 1,119 1.7x 1.7x 25.6x 12.0x
18/12/2002 Telecinco Mediaset 12% 2,178 4.0x 3.9x 16.9x 17.0x
24/12/2001 RTL Group Bertelsmann 22% 4,595 1.9x 1.8x 11.3x 8.2x
05/02/2001 RTL Group Bertelsmann 30% 10,611 4.1x 3.6x 24.6x 21.2x
07/04/2000 Pearson Television CLT-Ufa 100% 2,651 7.5x 7.1x 32.3x NA
Median 3.3x 3.3x 14.0x 11.9x
Mean 4.0x 3.5x 15.3x 12.8x
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Illustrative LBO analysis – Financing assumptions summary
29
Illustrative financing assumptions
Potential new LBO assumed on 31 December 2013
Entry valuation @ 10.0x EV/EBITDA 2013E
− 2013E EBITDA of £45m
− Implied purchase price of £450m
Total leverage up to 6.0x
− 6.0x Term loan B
− 7% pre-tax interest, 7 years maturity
Tax rate of 20% in line with UK corporate tax rate
Illustrative pro forma capitalisation
Sources and Uses – entry 31 December 2013
Sources £m
x 13E
EBITDA (1)% Uses £m
x 13E
EBITDA (1)%
Term Loan B 270 6.0x 60% Equity Value 450 10.0x 100%
Total Senior Debt 270 6.0x 60% Enterprise Value 450 10.0x 100%
Common Equity 180 4.0x 40%
Total Equity 180 4.0x 40% Fees and Expenses – – –
Total Sources 450 10.0x 100% Total Uses 450 10.0x 100%
(1) Based on 13E EBITDA of £45m as of 31-Dec-13.
(£ in millions)
FYE December 31, Amount %
x13E
EBITDA Tenor
Reference EBITDA 45
Term Loan B 270 60% 6.0xNet secured debt 270 60% 6.0x 7 yrs
Net debt 270 60% 6.0x
Common Equity 180 40% 4.0xSponsor Equity 180 40% 4.0x
Net capitalisation 450 100% 10.0x
PF Capitalisation
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Illustrative LBO analysis – Deleveraging profile
30
Note: Deleveraging profile above assumes no dividends paid.
Fiscal Year Ending 31 Dec 2014-2023 2014-2023
(£ million) 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Cumul. CAGR
Years from Closing (31-Dec-13) 0.0Y 1.00Y 2.00Y 3.00Y 4.00Y 5.00Y 6.00Y 7.00Y 8.00Y 9.00Y 10.00Y – –Revenues & Cashflow Statement
Sales 332 339 342 346 349 353 356 360 363 367 371 3,545 1.1%
EBITDA 45 47 48 48 49 49 50 50 51 51 52 496 1.4%
Capex (5) (5) (5) (5) (5) (5) (5) (5) (6) (6) (53) –Change in Net Working Capital (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (7) –
Operating Pre-Tax Free Cash Flow 40 42 43 43 43 44 44 45 45 46 436 –
Cash Taxes (assumed tax rate of 20.0%) (3) (3) (3) (3) (4) (4) (4) (6) (6) (7) (42)Cashflow Available Before Debt Service 38 39 39 40 40 40 41 39 39 39 394
Net Cash Interest Expense (19) (19) (19) (18) (18) (18) (18) (9) (6) (4) (147)Cashflow Available for Debt Amortisation 19 20 21 21 22 22 23 31 33 35 247
Mandatory Amortisation – – – – – – (270) – – – (270)Excess Cash Flow 19 20 21 21 22 22 (247) 31 33 35 (23)
Operating Metrics
Revenue Growth 2.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%EBITDA Margin 13.8% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0%EBITDA Growth 3.7% 2.7% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%Capex as a % of Sales (1.5%) (1.5%) (1.5%) (1.5%) (1.5%) (1.5%) (1.5%) (1.5%) (1.5%) (1.5%)Operating Pre-Tax FCF as % of EBITDA 86.7% 88.1% 88.1% 88.1% 88.1% 88.1% 88.1% 88.1% 88.1% 88.1%
Balance Sheet
Cash 1.00% – 19 39 60 81 103 125 – – – –
Revolver (£0m drawn at closing) +7.00% – – – – – – – 122 91 58 23Term Loan B +7.00% 270 270 270 270 270 270 270 – – – –
Total Debt 270 270 270 270 270 270 270 122 91 58 23
Total Net Debt 270 251 231 210 189 167 145 122 91 58 23
Credit Ratios
Leverage
Senior Net Debt / EBITDA 6.00x 5.39x 4.82x 4.35x 3.87x 3.38x 2.90x 2.42x 1.79x 1.14x 0.45xTotal Net Debt / EBITDA 6.00x 5.39x 4.82x 4.35x 3.87x 3.38x 2.90x 2.42x 1.79x 1.14x 0.45x
Coverage
EBITDA / Net Cash Interest 2.47x 2.56x 2.61x 2.67x 2.73x 2.79x 2.85x 5.97x 8.05x 12.69x(EBITDA - Capex) / Net Cash Interest 2.20x 2.29x 2.33x 2.38x 2.44x 2.49x 2.55x 5.33x 7.19x 11.33xCF Available for Debt Amortisation to Net Debt 7.4% 8.8% 9.9% 11.3% 13.1% 15.5% 18.8% 33.6% 56.0% 148.6%Excess Cash Flow to Net Debt 7.4% 8.8% 9.9% 11.3% 13.1% 15.5% n.m 33.6% 56.0% 148.6%Fixed Charge Cover 1.99x 2.08x 2.12x 2.17x 2.21x 2.25x 0.14x 4.59x 6.13x 9.54x
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Illustrative LBO analysis – Return analysis
31
IRR . CASH-ON-CASH
EXIT YEAR 3 - IRR EXIT YEAR 3 - COC
Entry Multiple 8.00x 9.00x 10.00x 11.00x 12.00x Entry Multiple 8.00x 9.00x 10.00x 11.00x 12.00x
Entry EV 360 405 450 495 540 Entry EV 360 405 450 495 540
8.00x 387 22.34% 9.41% (0.59%) (7.71%) (13.15%) 8.00x 387 1.83x 1.31x 0.98x 0.79x 0.65x
9.00x 436 31.59% 18.58% 7.75% 0.03% (5.86%) 9.00x 436 2.28x 1.67x 1.25x 1.00x 0.83x
10.00x 484 39.69% 26.52% 14.97% 6.73% 0.44% 10.00x 484 2.73x 2.03x 1.52x 1.22x 1.01x
11.00x 532 46.95% 33.58% 21.37% 12.68% 6.04% 11.00x 532 3.18x 2.39x 1.79x 1.43x 1.19x
12.00x 581 53.55% 39.95% 27.17% 18.06% 11.10% 12.00x 581 3.62x 2.74x 2.06x 1.65x 1.37x
EXIT YEAR 5 - IRR EXIT YEAR 5 - COC
Entry Multiple 8.00x 9.00x 10.00x 11.00x 12.00x Entry Multiple 8.00x 9.00x 10.00x 11.00x 12.00x
Entry EV 360 405 450 495 540 Entry EV 360 405 450 495 540
8.00x 395 18.36% 11.03% 4.82% 0.25% (3.34%) 8.00x 395 2.32x 1.69x 1.27x 1.01x 0.84x
9.00x 444 22.68% 15.46% 9.01% 4.26% 0.53% 9.00x 444 2.78x 2.05x 1.54x 1.23x 1.03x
10.00x 494 26.47% 19.31% 12.64% 7.73% 3.87% 10.00x 494 3.24x 2.42x 1.81x 1.45x 1.21x
11.00x 543 29.85% 22.72% 15.86% 10.80% 6.84% 11.00x 543 3.69x 2.78x 2.09x 1.67x 1.39x
12.00x 592 32.92% 25.78% 18.75% 13.57% 9.51% 12.00x 592 4.15x 3.15x 2.36x 1.89x 1.58x
Note: Returns exclude management dilution and exit costs.
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