REG - STV Group PLC - Acquisition of Greenbird Media for £21.4 million

STVAnnouncement

06/07/2023 07:00

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RNS Number : 1296F  STV Group PLC  06 July 2023

 

 

 

STRICTLY PRIVATE & CONFIDENTIAL

 

 

STV Group plc

 

Press Release 0700 hours, 6 July 2023

 

Acquisition of Greenbird Media for initial cash consideration of £21.4
million

 

Accelerates STV's strategy to grow its production business, further
diversifying its earnings from outside linear broadcasting and driving
long-term shareholder value

 

Acquisition highlights:

·     STV acquires 100% of major UK unscripted production network
Greenbird Media through existing bank facilities

·   Greenbird's portfolio - which includes majority stakes in leading
unscripted companies Crackit Productions and Tuesday's Child and minority
positions in 13 other producers - not only brings immediate scale and earnings
enhancement but also the potential for future growth through consolidation of
minorities

·  Significantly boosts STV Studios returning series from 12 to almost 40,
including international series

·     Transaction is margin accretive for STV Studios and materially
earnings enhancing for STV Group from day 1, as well as offering scope for
future revenue and cost synergies

·    Takes STV beyond its diversification target of 50% of earnings from
outside traditional linear broadcasting by end 2023, with estimated out-turn
of at least 60%, while keeping the group well within its financial covenants.

STV Group plc ("Company" or "STV") today announces it has acquired, through
its wholly-owned subsidiary STV Studios Limited, 100% of the issued share
capital of unscripted television production network Greenbird Media Limited
("Greenbird") for a total cash consideration of approximately £24 million, of
which £21.4 million was paid on completion.

 

As well as helping its network of investee production companies to accelerate
their growth plans, Greenbird is also a service provider, offering a bespoke
back-office solution to enable creatives to focus on pipeline development and
programme production.

 

Strategic benefits:

 

Accelerates the growth of STV Studios by more than trebling the number of
returning series, strengthening STV's existing rights catalogue and future
creative pipeline

 

·     Founded by respected television executives Jamie Munro and Stuart
Mullin in 2012, Greenbird has built the largest independently-owned network of
high quality producers in the UK, with an archive of 2,000+ hours of content,
and will this year produce over 350 hours of new programming across 25
returning series.

 

·     Greenbird network companies are behind such hit shows such as LEGO
Masters (C4, Fox in the US), The Hit List (BBC One), Animal Casualty 24/7
(C5), The Misadventures of Romesh Ranganathan (BBC Two), Late Night Lycett
(C4) and Mortimer & Whitehouse: Gone Fishing (BBC Two).

 

·    Greenbird directly owns majority stakes in two of the UK's leading
unscripted production companies, Crackit Productions (75%) and Tuesday's Child
(51%), founded and run by award-winning creative leaders Elaine Hackett (ex
Endemol UK board member overseeing Big Brother) and Karen Smith (ex MD of
Shine TV and co-creator of Strictly Come Dancing) respectively. Tuesday's
Child in turn owns a majority stake in Interstellar (51%). Greenbird also
holds minority positions in a further 12 production companies, including
Rumpus Media (40%), Glasgow-based Hello Halo (30%) and Flicker Productions
(40%), offering significant scope for future consolidated growth.

 

Delivers scale benefits for STV Studios as one of the largest UK production
groups and further diversifies STV Group's earnings

 

·     The acquisition will make STV Studios one of the largest production
groups in the UK, is a major step towards our stated objective of becoming the
UK's No.1 nations & regions producer, and accelerates the STV Group's
overall diversification strategy.

 

·     We now expect to comfortably exceed our diversification target that
at least 50% of STV's operating profit should come from outside linear
broadcasting by the end of FY23, transforming STV into a more balanced,
resilient media company offering both linear and digital reach, and the
creation and ownership of valuable IP in the growing global content market.

 

Provides significant opportunities for further growth

 

·   The acquisition will materially enhance the future growth prospects of
STV Studios creatively, commercially, and internationally.

 

·     STV Studios production labels will more than double from 9 to 24
forming an unrivalled network of senior creative leaders and a significantly
expanded forward pipeline of new programme ideas, a number of which have
already been greenlit for 2024. The enhanced scale of the group will allow STV
Studios to realise more value from a combined programme catalogue of 5,000+
hours in the distribution and secondary sales markets.

 

·     The enlarged STV Studios will also pursue an international growth
strategy to generate maximum value from its shows outside the UK and build on
the recent success of LEGO Masters (20 territories including UK and US) and
Bridge of Lies (16 territories including UK & Spain).

 

·    The group will have expanded bases in Glasgow and London, as well as
offices in Belfast, Cardiff, Manchester and Brighton, strengthening our
ability to take advantage of the continuing strong growth of production in the
nations and regions.

 

·     STV Studios is also one of the few multi-genre production groups of
scale in the UK with the capability to produce high quality programming across
scripted and unscripted, with our drama companies delivering three
high-profile new series in 2023: the acclaimed Blue Lights for BBC One, series
2 of prison drama Screw for C4, and Peter Capaldi/Cush Jumbo thriller Criminal
Record for Apple TV+.

 

Further strengthens STV Group's management team

 

·     Following the acquisition, Greenbird founders Jamie Munro and
Stuart Mullin will join the board of STV Studios in the roles of Chief
Commercial Officer and Finance & Integration Director respectively,
working alongside Chief Operating Officer Paul Sheehan under the leadership of
Studios Managing Director David Mortimer, with a brief to drive the expansion
of STV Studios both in the UK and internationally.

 

·    The founders and creative leaders of the key Greenbird production
companies will remain with their businesses under long-term incentive
arrangements, forming an unrivalled network of creative leaders across STV
Studios.

 

Key financials:

 

STV has acquired 100% of the issued share capital of Greenbird from Keshet
International (60% shareholder) and Greenbird's founders, Jamie Munro, Stuart
Mullin and Karen Smith (the "Founders"), for a total cash consideration of
approximately £24 million.

 

An initial cash payment of £21.4 million includes £11.5 million for the
repayment of loan notes to Keshet at completion, a cash adjustment of £0.3
million, and the balance payable to the existing shareholders, equivalent to
86% of the equity, including Keshet's entire equity interest.  Deferred
consideration in relation to the balance of 14% of the equity, currently
estimated to be £1.6 million, is payable to the Founders based on agreed
EBITDA targets over the two years ending 31 December 2024.  The remaining
consideration of c.£1 million relates to surplus cash balances held by the
majority companies (being Crackit, Tuesday's Child and Interstellar) at
completion, which will be paid to the existing shareholders at the point in
future when STV, through Greenbird, owns 100% of their equity or when monies
are dividended by them to Greenbird.

 

Immediately earnings enhancing and further diversifies STV's revenues and
profits

 

·     The acquisition will be materially earnings enhancing, in terms of
STV Studios and STV Group's revenue, profit and margin, as well as STV Group's
EPS.

 

·     On a proforma basis and in line with Greenbird's 'percentage of
completion' revenue recognition policy, Greenbird generated consolidated
revenues of c.£32 million, consolidated operating profit of c.£3.5 million
and consolidated profit before tax of c.£2.9 million in the year ended 31
December 2022 (excluding share of associates).  Greenbird's gross assets as
at 31 December 2022 were £18.5 million.  The total revenue generated by
entities in which Greenbird held an investment in 2022 was c.£64 million.

 

·   Under STV's ownership, Greenbird will report in accordance with STV's
episodic delivery revenue recognition policy.  On that basis, the proforma
FY22 results would have been revenue of c.£28 million, operating profit of
c.£3 million and profit before tax of c.£2.5 million.  Furthermore,
Greenbird is forecast to deliver revenue of £20-25 million and operating
profit of £3-3.5 million in H2 2023, which will be consolidated into the STV
Group financial statements for FY23.  As the corporate structure of Greenbird
includes entities who are not wholly owned, there will be an allocation of
profit, via reserves, to minority interests that we expect to be c.£1 million
in H2 2023.

 

·    We expect the enlarged STV Studios division to deliver revenue of
£70-75 million and adjusted operating profit of £6-6.5 million in FY23,
taking the STV Group well beyond its diversification target of achieving 50%
of operating profit, to at least 60%, from outside traditional linear
broadcasting by the end of 2023.

 

·     STV expects to deliver significant revenue and cost synergies
across the enlarged STV Studios business of at least £750k p.a. from 2024.

 

Significant headroom remains in bank facility and key financial covenants

 

·     STV has funded the acquisition entirely from its existing £60
million revolving credit facility.  The Group has also released £10 million
from its accordion facility to provide additional liquidity headroom although
does not currently anticipate using this incremental funding capacity.

 

·     The enlarged group's net debt(₁) on day 1 will be approximately
£32 million, which comprises net debt in the existing STV Group of c.£38
million and cash balances in the Greenbird network of c.£6 million, of which
£2 million is available to the Group on completion.  Greenbird currently
funds working capital through existing cash reserves and without external bank
facilities, and this is expected to continue for the foreseeable future.

 

·     STV Group's key financial covenants are net debt to EBITDA (maximum
of 3 times) and interest cover (minimum of 4 times).  In accordance with
STV's debt facility, the Group expects net debt to EBITDA to be c.1 times and
interest cover to be at least 10 times at the end of FY23.

·     STV expects to continue to generate adequate cash resources to fund
future growth.  Its dividend policy will remain unchanged.

 

(₁) - excluding lease liabilities

 

Simon Pitts, STV CEO said: "Growing STV Studios into the UK's #1 nations and
regions production company is one of our core strategic objectives. This
transformative acquisition represents a major step towards that goal, adding
significant scale and creative firepower to the group and immediately
accelerating STV's overall diversification in terms of both revenue and
profit. We're delighted to be partnering with Greenbird and to welcome their
incredibly talented network of creative leaders to the STV family as we
jointly aim to grow our production base in the UK and internationally."

 

David Mortimer, Managing Director of STV Studios said "Over the last 4 years
we have transformed STV Studios' creative and commercial performance, so now
feels like the right time to take our next big step towards becoming one of
the UK's most successful production groups. I've known and worked with many of
the team at Greenbird and their associated companies previously and can't wait
to get on with the job of integrating these great production companies into
the STV Studios family. Jamie and Stuart have built a brilliant business and
they'll bring unrivalled commercial expertise as part of our senior management
team. Over the next few years, we will be making some huge television shows
for broadcasters and streamers both here in the UK and around the world, so
this feels like an exciting new era for STV Studios."

 

Jamie Munro and Stuart Mullin, Greenbird founders, said: "This is an exciting
new chapter in Greenbird's history. We are hugely proud of the Greenbird
incubator model we have built. It has given creatives space to flourish and
deliver some of the most innovative, entertaining and loved programmes in the
UK. Their creative power is unrivalled and has been recognised by viewers,
critics, awards panels and through the volume of international sales that
their shows have generated.

 

We're delighted to be working with Simon and David at STV. We look forward to
a future together helping a wider network of creatives realise their
ambitions."

 

There will be a presentation for analysts and investors today, 6(th) July
2023, at 12.30pm, via Zoom.  Should you wish to attend the presentation,
please contact Angela Wilson, angela.wilson@stv.tv
(mailto:angela.wilson@stv.tv) or telephone 0141 300 3000.

Further information

The Greenbird network comprises the following production investments:

 

Majority positions

Crackit Productions (75%)

Tuesday's Child (51%), which in turn owns 51% of Interstellar

 

Large minority positions

Flicker Productions (40%)

Rumpus Media (40%)

Pi (40%)

Riverdog (37.5%)

Hello Halo (30%)

Kalel Films (25%)

 

Small minority positions

Top Hat (5%)

Goat Films (5%)

Owl Power (5%)

Little Dooley (5%)

Big Light (5%)

Rockerdale Studios (3.2%)

 

Enquiries:

 

STV Group plc          Stephen Innes, Senior PR Executive
         07500 757 049

Panmure Gordon      Rupert Dearden / Sam Elder / Dominic Morley
020 7886 2678

(Joint Broker)

Shore Capital           Mark Percy / Rachel
Goldstein                            020 7408 4090

(Joint Broker)

Camarco                 Geoffrey Pelham-Lane, Partner
                07733 124 226

(Financial PR)          Ben Woodford, Partner
                    07790 653 341

 

This announcement contains inside information for the purposes of Regulation
11 of the Market Abuse (Amendment) (EU Exit) Regulations 2019/310 (as
amended). Upon the publication of this announcement via a Regulatory
Information Service, this inside information is now considered to be in the
public domain.

 

Under the FCA Listing Rules, the acquisition of Greenbird constitutes a Class
2 transaction and, as such, this announcement is made in accordance with STV's
disclosure obligations pursuant to Chapter 10 of the FCA Listing Rules.  For
the purposes of LR 10.4.1 R (Notification of Class 2 transactions), the gross
assets of the Greenbird network were £18.5 million at 31 December 2022 and
profits for the year then ended were £2.5 million.

 

Notes to Editors

 

STV Group plc

STV Group plc is Scotland's home of news, entertainment and drama, providing
audiences with top-quality programming on air, online and on demand.

 

STV's broadcast channel reaches 3 million viewers each month, with a packed
schedule across the day. STV's fast-growing streaming service, STV Player,
offers viewers across the UK home-grown and international drama box sets and a
vast array of factual entertainment series. Production company STV Studios -
one of the UK's leading content businesses - has an impressive track-record of
success across a wide range of broadcasters and streamers, with productions
including BAFTA-winning Elizabeth Is Missing for BBC One and prison drama,
Screw for Channel 4, quiz format Bridge of Lies for BBC One and much-loved
returning series Celebrity Catchphrase (ITV and STV) and Antiques Road Trip
(BBC One).

 

Greenbird

Greenbird is both an investment business and a services business to help
production companies achieve their full potential. Founded in 2012, it invests
equity capital to accelerate companies' growth plans, and provides a bespoke
back office solution to ease the process of running a business as well as
offering commercial advice.

 

With more than 30 years' experience in television production, Jamie Munro and
Stuart Mullin provide producers with access to innovative funding models,
offer expertise in the commercial exploitation of intellectual property and
licensing deals; give strategic and operational support and provide
administration services including business affairs, IT, legal, accounting and
HR.

 

Since 2012, Greenbird has helped 22 unscripted indies deliver approximate
2,000 hours of programmes - an estimated £300m worth of production activity.

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