M & A CritiqueIn order to consolidate its position in the growing media space, Jagran Prakashan (JPL) bought Music Broadcast (MBPL), which operates popular Radio City FM stations. Foraying into the radio business, Jagran Prakashan, which runs leading Hindi daily Dainik Jagran, said the all‐cash acquisition of MBPL, which had a turnover of Rs 161.8 crore in the previous financial year, is expected to provide a strong return on its investment. With this acquisition, Jagran Prakashan will enter the radio business. Jagran Prakashan is a media and communications group with interests in newspapers, magazines, outdoor advertising.
The Deal :
The financial terms of the deal are not disclosed. However, sources told that the deal could be worth Rs 475‐500 crore. The company will fund the acquisition primarily from internal accruals and investments. This acquisition will not impair its ability to distribute dividends, the company stated. The acquisition is subject to regulatory approvals, including those from the Ministry of Information and Broadcasting, and execution of binding agreements.
In fact, the radio business has witnessed significant growth in recent past and is expected to grow at more than 18 percent CAGR in the recent years in the country, according to a KPMG‐Ficci report.
About Companies :
JagranPrakashan Limited (JPL) :
JagranPrakashan Limited is a leading media and communications company with interests spanning across newspapers, magazines, outdoor advertising, promotional marketing and event management, and digital business. The group publishes 12 newspaper brands with over 100 editions and 250 plus sub‐editions from 36 different printing facilities across 15 states in 5 different languages. With a total readership of 68.01 million for all its publication brands, the group is the largest print media company in the country. Apart from Dainik Jagran, the group’s publications include Midday, Naiduniya, INext, City Plus and Punjabi Jagran.
Music Broadcast Private Limited (MBPL):
Music Broadcast Private Limited is the owner and operator of India’s leading radio network – Radio City. It has a national footprint with operations across 20 cities including Mumbai, Delhi, Bangalore, and Lucknow, reaching out to around 10.8 million listeners across the country constituting 65% of SEC AB population. To establish a better reach and tap potential marketers and advertisers across the country, Radio City 91.1 FM has entered into a strategic alliance with Suno Lemon in Gwalior & Friends FM in Kolkata. Radio City also operates the first all‐inclusive Music Portal (www.planetradiocity.com) with 14 dedicated stations with the combined listenership of 9 million. The company is led by a strong management team and has a robust process, system, and infrastructure. Radio City operates 20 FM stations in seven states. It has a presence in cities such as Delhi, Mumbai,Chennai, Bengaluru and Lucknow and has a listener base of 10.8 million.
Why diversification?
The CFO of JPL while discussing the acquisition clarified the following points:
● Both these mediums while complementing with each other do not provide many synergies
● Advantages will flow to the print or print will provide to radio
● Radio City being the strongest in Mumbai, will help Midday get entry into the national advertising and we will be able to increase the share in the total ad pie
● Once local advertisers become major contributors as is the case universally, print brands will help radio in a big way
“Most media companies in the west are fairly integrated. If you look at Walt Disney, Sony or Fox,they are into producing movies, they are into publishing and also the distribution of their products. While in India, companies are generally present in a particular line. However, the customer base that you are selling advertising space to, whether it is in print, TV or radio is generally the same. So it makes sense to be able to provide a variety of media to the customer where he can advertise,” said Deepak Nanda, chairman of Knights Bridge Financial Services Pvt. Ltd.
Strategic benefits to JPL :
● Increased business diversity, across geographies and across media vehicles. Pan India presence helps JPL reap benefits from traditionally non-Jagran geographies.
● Radio business will complement JPL’s print, outdoor, activation and digital businesses and enable deeper inroads with advertisers both at national and local level.
● Radio can be a significant tool added to our current News delivery platforms
● Get access to the best radio markets – radio licenses are auctioned by MIB; Virtually impossible to “build” a similar radio network/brand today
● Helps future expansion of our media vehicles in territories beyond the JPL’s footprint area
● Strengthening JPL’s presence in New Media
Value Creation for shareholders :
● Radio City’s high operating margins will positively contribute to JPL’s operating margins and profitability
● An excellent opportunity to gainfully deploy capital with improvement in ROC
● As radio is considered a high growth medium, the valuation multiples are higher than traditional media
● Opportunity to participate and be a beneficiary of India’s fastest growing traditional media
● Cross Promotion, Ad Revenue, and Cost synergies, in particular with Dainik Jagran, Mid‐Day, Mid‐Day Gujarati, City Plus, I‐next, Jagran Engage, Jagran Solutions, and Jagran’s Digital Properties
Way Forward :
● Migration of existing stations of MBPL to Phase III of Radio
● Finalization of Strategy for Expansion in Phase III. Focus on Strengthening the core JPL as well as MBPL domains
● Exploring possibilities of consolidation with Promoter’s existing radio business – “Radio Mantra”. A strong well-accepted brand in its existing areas of operation in UP, Punjab, Haryana & Jharkhand. No overlap with Radio City. The combined network creates a compelling proposition for advertisers, in the core Jagran markets
● Strengthen the sales network further by adding more alliance partners, to leverage the strong client relationships and competent sales force
● Drawing the revenue and cost synergies, between radio and existing media platforms of JPL.
Risks involved :
Experts said, “The risk in the deal is that the permits for the stations to be acquired by Jagran will be expiring by 2016. But the new licences for the stations will be auctioned for the next 15 years. “The company has taken an entrepreneurial risk. We will have to bid for these licences again but we already have an inventory of advertisers and listenership base if the deal goes through.”
Overall condition of the radio business :
In a period of economic slowdown, when marketers are under cost pressure, the marketing budget is under intense scrutiny, a relatively more economical medium like radio gets in favour. However, as the impact of this medium gets visible to the advertisers, the revenues for the Radio players grow steadily across business cycles. Another reason why radio does better than print, TV and outdoors in a lean period is that advertising spends get diverted more and more towards “consumer promotions”.
Brand marketers divert spends from core “brand advertising” to supporting consumer promotions. As a result of higher promotional activity, radio garners more and more share of the marketers’ advertising budget which has been visible in the last two years. A company like ENIL generates more than 50% of its revenues from local advertising. As there is now an expectation of an economic upturn over the next 2‐3 quarters and is expected to be sustained in nature, we think that radio business is expected to do well in the foreseeable future on the current business that is being run due to higher ad‐spend which follows an economic recovery/upturn as is reflected by the above table.
| In INR billion | 2012 | 2013 | 2014(P) | 2015(P) | 2016(P) | 2017(P) | 2018(P) | CAGR (13-18) |
| 149.6 | 162.6 | 179 | 199 | 222 | 248 | 275 | 11.10% | |
| Radio | 12.7 | 14.6 | 16.6 | 19 | 23 | 27.8 | 33.6 | 18.10% |
| Total | 162.3 | 177.2 | 195.6 | 218 | 245 | 275.8 | 308.6 |
Source: FICCI-KPMG 2014 report, ENIL Annual Report
Financials:
(In crores)
| Particulars | JPL | (A) | MBPL | (B) | Total(projected) | ||
| 2013 | 2014 | 2015 (P) | 2013 | 2014 | 2015 (P) | (A)+(B) | |
| Total Income | 1640.8 | 1749.3 | 1843.75 | 150.8 | 161.8 | 201 | 2044.75 |
| Growth rate | 7% | 5.40% | 7% | 24.23% | |||
| Profit before Tax | 255.2 | 305.7 | 338.03 | 9.2 | 21.4 | 36.02 | 374.05 |
| Margin | 14.5% | 18.33% | 13% | 17.92% | 18.29% | ||
(H1 FY 15 figures are actual & growth rate for H2 FY 15 is assumed 7% for both the companies.)
From the above table, it is seen that revenue of JPL is increasing from 1749.3 to 1843.75 and after the acquisition of MBPL it is 2044.75 which means revenue of JPL has grown by 16.89%.
CAGR for Radio industry is 18% whereas growth rate of MBPL for projected FY 15 is 24.23% which is exceptionally good. That might be the reason for acquiring MBPL. The advertising revenue growth of MBPL for H1 FY 15 is 28%.
Conclusion :
The biggest advantage to JPL from this acquisition is an increase in the advertising revenue as radio business will provide advertisers to the printing business.
This deal will catapult JPL (JagranPrakashan) into a leadership position in the radio industry and enable the company to benefit from the rapid growth in radio advertising. The radio business will complement JPL’s print, outdoor, activation and digital business, and enable deeper inroads with advertisers both at national and local level.
Another reason for why this acquisition will be successful is that the revenue growth of the radio city is more than the CAGR of the industry and it is predicted by the experts that there will be growth in the revenue when phase III licenses will be given.
