Private Equity circles Kiss and Magic

Strategic acquirers look to have the upper hand in the drawn out auction of media company Emap and its various divisions although private equity is still a strong contender for its radio business.

The company has reiterated that it is still examining all options “including the sale or demerger of some of all of the constituent parts of the group”. However, it has indicated that potential bidders for its business to business (B2B) publishing division should consider including Emap plc in their offers.

There have been reports that Cinven has withdrawn from the process. It was interested in the B2B activities. Apax-backed Incisive Media is still thought to be keen however. Reed Elsevier has also been mentioned.

Emap has reported a 16% fall in first half pre-tax profits to £80m on sales down 6.2% to £408m. The consumer magazines saw sales drop 19%. This has not given financial buyers confidence. It is believed trade buyers will be able to pay more because of the synergies they could achieve.

Chairman Alun Cathcart denied that the credit crunch had created problems for private equity groups to agree financing for any proposals. However, he admitted the sale might take until 2008 – longer than originally envisaged.

There has been stronger private equity interest in Emap’s radio stations, such as Kiss and Magic FM. Vitruvian and Veronis Suhler Stevenson could team up to offer around £400m for this division.

Global Radio, the vehicle of Lydian Capital, backed by racing entrepreneurs Dermot Desmond, JP McManus, John Magnier and Michael Tabor, is also interested. Global is chaired by former ITV chairman Charles Allen and recently won the battle for Chrysalis’ radio stations, such as Heart.

Paul Bates, analyst at Charles Stanley, said; “Global are quite clearly the bookies’ favourite, after their purchase of Chrysalis Radio. They have good financial backing and the ability to make synergies with their first purchase.”

He added that private equity bidders did not have such a financial advantage. Vitruvian is thought to be backing Phil Riley, former boss of Chrysalis Radio. Bates said that Communicorp, which bought Emap’s Irish radio stations earlier this summer, was unlikely to make an offer.

The deadline for the next round in the auction is December 3. A serious bidder who was spurned could make an approach for Gcap, which owns Capital Radio and Classic FM, which has a similar value to Emap’s radio division, according to Bates.

Bates said he thought a quoted radio company would be unlikely to enter the process. However, Guardian Media Group might be interested.