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Entertainment One raises £130mln to fund largest ever acquisition

eOne has agreed to buy music publisher Audio Network for £178mln, surpassing the £140mln it paid for a controlling stake in the producer of Peppa Pig in 2015
peppa pig
Audio Network owns the rights to more than 150,000 songs

Peppa Pig owner Entertainment One PLC (LON:ETO) has raised £130mln from investors to help fund its acquisition of Audio Network.

The FTSE 250 group is paying £178mln for the music publisher, which has provided scores for TV series including Killing Eve.

READ: eOne sizzles as Peppa Pig brings home the bacon once again

The purchase is the largest in eOne’s history, eclipsing the £140mln it paid for a controlling stake in the producer of Peppa Pig back in 2015.

To pay for Audio Network, it has raised £130mln from investors through the issue of 28.9mln shares at 450p each – a 7.9% discount on Thursday’s closing price.

The shortfall has been covered by a £52mln loan from JP Morgan Chase.

eOne shares were down almost 2% to 467p in early deals on Friday morning.

“As we continue to unlock the power and value of creativity for artists, we are very pleased to welcome Audio Network, whose passionate management team and ambition align with ours,” said chief executive Darren Throop.

“The combination of eOne's front-end commercial artist catalogue and Audio Network's premium diversified music catalogue creates a one-stop solution for business customers seeking high-quality music.”

Deal boosts eOne’s music business

Based in London, Audio Network has 140 employees in nine offices around the world.

It has a “premium” catalogue of more than 150,000 tracks and 30,000 customers, who pay an annual fee to use the music in their productions.

In the year to June, the company posted a 13% rise in revenue to £29mln and pre-tax profits of £10mln.

eOne said the addition of Audio Network would boost its own music division, which has a back catalogue including songs by Snoop Dogg and Dr Dre.

The acquisition is expected to boost earnings in the current financial year and should create “scale, synergies and revenue opportunities” across the group, eOne said.

Acquisition ‘makes sense’, say analysts

“The multiple equates to 15x LTM EBITDA (y/e 30 June 2018), consistent with recent transaction multiples in the music publishing space (and lower than the multiple the market places on Vivendi’s UMG),” noted analysts at Citi.

“We see both strategic and financial sense to the deal. This deal brings a high margin asset with a highly recurring high revenue stream, growing at 13%+, into the group.

“It provides a platform for ETO to expand the revenue potential of its current music catalogue, a source of music content for its video/family production business and scope for geographical expansion of Audio Networks.

“Alongside the deal being EPS accretive in FY20 (as guided), the high cash conversion means it could boost FY20E adjusted equity FCF.”

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