M&C Saatchi PLC (AIM:SAA) has confirmed it received an unsolicited takeover approach for its Performance Media division from Brave Bison, but rejected the offer, saying it “fundamentally undervalues” the business. Panmure Liberum agrees.
The broker, which acts as corporate broker to M&C Saatchi, argues that the proposed deal, worth about £50 million in cash and shares, significantly understates the value of one of the group’s fastest-growing units.
The implied valuation of roughly six times forecast earnings before interest, tax, depreciation and amortisation, or eight times earnings, “looks very low” given the unit’s growth profile and strategic relevance, analysts Johnathan Barrett and Sean Kealy wrote.
Performance Media, which manages targeted online marketing campaigns for clients, grew 5.4% in the first half and is on track for about 6% growth this year.
Panmure sees the division as a key part of M&C Saatchi’s long-term offering, a business increasingly geared to the data-driven side of advertising.
The analysts called it “a growth hedge in a tough macro environment” as brands shift more spending into measurable digital channels.
They warned that selling the unit could have a “reverse gearing effect” on Saatchi's group profits, leaving the remaining operations smaller and less profitable.
Instead, they expect M&C Saatchi to keep investing in its performance capability, particularly in the US, where the division has been expanding rapidly.
Panmure keeps its 'buy' rating and 220p price target, saying the speculation highlights the hidden value within the wider M&C Saatchi portfolio.
At 138p, the shares trade on about seven times next year’s earnings, a level the broker calls “inconsistent with the quality and growth prospects of the underlying assets.”