Doubling Nielsen numbers not a cinch for LBO kings
By Rob Cox and Rolfe Winkler
Nielsen’s planned $1.75 billion IPO will be keenly watched by its core demographic: buyout barons. Six private equity firms — including industry biggies KKR, Blackstone, Carlyle and THLee — own the business, which dominates the market for tracking media viewership. The question is whether the new Nielsen can attract similar audience awareness from stock market investors.
If it can, the business led by former General Electric wunderkind David Calhoun may chalk up decent returns for its current investors. They injected about $3 billion of equity into the $10 billion buyout of the Dutch-listed business formerly called VNU. An IPO that comes close to doubling their money would help dispel criticism that buyout firms are nothing more than overpaid financial engineers.
That’s not an unreasonable goal. Under Calhoun, the company has disposed of assets, focused on its core ratings business and squeezed out costs. Adjusted earnings before interest, tax, depreciation and amortization rose to around $1.3 billion last year from $879 million four years ago. Revenue has grown about 2 percent annually since 2007.
Moreover, as the industry standard for television and cable ratings information, Nielsen has traditionally operated a business with high barriers to entry. And its penetration of developing markets is still small, accounting for just around 17 percent of revenue.
But media usage habits are changing. Competitor comScore, for instance, is better positioned to measure eyeballs gravitating to online media like YouTube and Facebook. In its prospectus, Nielsen also notes the risk that multiple competitors are looking to measure TV audiences digitally using newfangled set-top box technology.
Given these risks and opportunities, what’s Nielsen worth? At 11 times EBITDA, a hefty 20 percent premium to GfK of Germany and Ipsos of France to reflect Nielsen’s dominant position, the company would sport a $14.3 billion enterprise value. Net of debt, that’s just under $6 billion for the equity — nearly doubling the consortium’s investment.
That may not sound like a home run. But it would be validating for the industry. It would suggest LBO firms do more than just shift debt around; can put large amounts of capital to work and make better-than-market returns; and even manage to cooperate with one another. For all these reasons, Nielsen will be a deal worth watching.