Soap’s on!

25 March 2015 By Jeffrey Goldfarb

Buyout barons at least will have learned to count to ocho with Univision. That’s the unusually high number of years it probably will take to start tabulating the return on their investment in the Spanish-language broadcaster.

A $13.7 billion purchase that closed in March 2007, with a $4 billion equity check and debt of over 12 times Univision’s EBITDA, ran headlong into an advertising bust. Along the way, though, private equity firms TPG, Thomas H. Lee, Madison Dearborn, Providence Equity and Saban Capital showed some pluck and benefited from a little luck.

The pluck came in the form of a 2010 deal with Mexico’s Grupo Televisa, whose plans to buy Univision were thwarted by the buyout. It scored a $1.2 billion investment four years later for a 5 percent stake in Univision, and up to 35 percent more over time, overall at a discount to the price paid by the original buyers.

Univision, however, also secured a sweetheart deal for Televisa’s telenovelas, soccer matches and more. As a result, Univision’s programming costs are low as a percentage of revenue compared to other broadcasters and help juice its operating margins.

The capital and content secured from Televisa also enabled Univision to start new sports and news channels. These, along with the flagship network, take advantage of a fortuitous but unforeseen source of revenue at the time of the buyout: fees paid by cable and satellite operators to carry stations.

The ensuing growth helped shrink leverage and led to a new equity valuation of $8 billion in January 2014, thanks to a small investment by some hedge funds. An initial public offering should bring even more.

Assuming no operating cashflow growth from last year’s $1.25 billion, and applying the same 15 times multiple as the buyout, the Univision enterprise would be worth almost $19 billion. Subtracting $9.4 billion of debt leaves an equity value also of about $9.4 billion. With 10 percent EBITDA growth, put on a healthier 18 times multiple – about 50 percent higher than CBS and Twenty-First Century Fox command – the equity would be worth more than $15 billion.

Even at that level, an estimated 15 percent dilution by Televisa and others and the long wait mean the annualized internal rate of return for the original investors would barely top 15 percent, before fees. That’s a modest figure in the language of buyouts, but also a decent outcome for a prolonged LBO soap opera.

This item has been corrected to add the erroneously deleted last paragraph.

 

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