European Apax Partners Exits Ginger Media Group –

Scottish Media Group, owner of the Grampian and Scottish Television ITV franchises and the Herald newspaper, in mid-January announced its GBP225 million acquisition of Ginger Media Group, the television and radio group owned by U.K. broadcasting personality Chris Evans. At press time, the transaction, which is subject to approval both from shareholders-due on Jan. 31-and the UK Radio Authority, is set to deliver handsome returns both to Chris Evans, who will pocket some GBP75 million in cash and shares over a three-year period, and to Apax Partners, the media group’s private equity backer.

The deal will be partly funded by a GBP58 million rights issue by Scottish Media Group, which will pay GBP110 million in cash, GBP40 million in equity and assume GBP75 million of Ginger’s debt.

Ginger Media Group came into being in late 1997, following the sale of Virgin Radio to Capital Radio. Apax’s involvement with the group began four years earlier, when it invested GBP4.5 million in Virgin Radio’s start-up. The private equity group sold its 25% stake back to the radio company in 1997, achieving a net 3.5 multiple of its original investment.

Regulators Breed Opportunity

The 1997 Capital Radio/Virgin deal was subject to review by the Mergers and Monopolies Commission. While the review was ongoing, Chris Evans approached Apax with a proposal to buy the Virgin Radio business-a transaction that had to be completed before the MMC announced the results of its deliberations because, had they been favorable to the Capital/Virgin deal, the sale would have been complete. Apax therefore had a window of approximately four weeks to match Capital’s offer and do the deal.

Apax director Paul Fitzsimons, who worked on the Ginger/Virgin deal alongside Barbara Manfrey and has served with her on Ginger’s board since the investment, said that Apax’s long-standing relationship with Virgin Radio’s management made completion within this tight timeframe feasible. The eventual structure involved the merger for a consideration of GBP80 million, of Chris Evans’ TV company Ginger Productions with Virgin Radio.

Apax invested GBP22 million for an unratcheted 20% holding, supported by a GBP40 million senior debt package from Paribas. Chris Evans owned a 50% stake in Ginger Media Group with a further 10% in the hands of management and staff, while Virgin’s Richard Branson retained a 20% holding in the new entity.

Apax’s investment thesis, as summarized by Fitzsimons, was that Chris Evans would increase Virgin Radio’s listenership and, in parallel, that the TV group would expand its activities and boost revenues. Both of these objectives were attained, with Virgin Radio’s audience increasing by approximately one-third, and group earnings rising to GBP15 million from GBP10.5 million during the life of the investment.

On to Larger Fields

The rationale for a sale to Scottish Media Group, Fitzsimons said, is that Evans and the management team wanted to grow the business further. They believed growth could better be achieved as part of a larger media group rather than as a standalone entity. Goldman, Sachs & Co., whom Apax selected as advisers, agreed that for Ginger Media to develop further, the company would fare best as part of a broader media group. Accordingly, during the closing months of 1999, Ginger Media Group’s owners initiated a limited auction.

On the sale to Scottish Media Group, Apax will receive proceeds of slightly more than GBP50 million and will have more than doubled its money in just over two years.

“For a large LBO, this is a nice return,” Fitzsimons said of the investment’s performance.

Scottish Media Group, which described the deal as “a transforming acquisition at an excellent price”, will strengthen its national presence and growth prospects through the purchase of Ginger.

However, Granada, which owns 18% of Scottish Media Group, was less than overjoyed with the news of the proposed acquisition, which Granada chairman Gerry Robinson reportedly described as “a bad-value deal.” Granada’s misgivings seem to be twofold, relating first to Chris Evan’s reputation as a volatile and impulsive character and second to the block that the deal would put on any attempt by Granada to acquire Scottish Media Group outright, thanks to TV competition regulations.

The first objection would appear to be somewhat overcautious. Evans, despite his detractors when he is behind a microphone and on screen, has established himself as a credible businessman through the creation and development of his media business. Furthermore, by incorporating payment of shares over a three-year period, the structure of the Scottish Media Group/Ginger deal has been designed to align Evans’ interests with those of the enlarged group.

Scottish Media Group’s other major shareholder, Flextech, which owns 18.6% of the media business, has issued irrevocable undertakings to support the Ginger acquisition and related rights issue. Meanwhile, broader institutional sentiment towards the transaction has been generally positive, with SMG shares increasing by 45p to GBP11 on announcement of the proposed acquisition.