March 20, 2019

Breakingviews: WPP would win most from $5 bln data-business sale

by Breakingviews.

Companies often turn to Kantar’s figures on consumer tastes before making a big decision. A quick run through the numbers suggests that possible private-equity buyers might need to do some more market research of their own.

Mark Read, the boss of 11 billion pound ad group WPP, wants to offload a majority stake in his data analytics business. Reuters exclusively reported on Tuesday that buyout groups including Advent, Blackstone, Hellman & Friedman and CVC Capital Partners are interested, and that a deal may value Kantar at 3.5 billion pounds including debt.

There’s reason for the interest. Kantar, whose operating profit dropped to 301 million pounds last year from 350 million pounds in 2017, is one of the many unloved subsidiaries in WPP’s sprawling communications empire. That makes it a classic turnaround candidate, especially since profitability is falling. Analysts are pencilling in near-20 percent operating margins for Nielsen Holdings and YouGov the year after next, compared with Kantar’s 15 percent last year.

There’s also a chance for a potential rollup: buyout group KKR in 2017 bought into German market-research business GfK, while activist investor Elliott Management last year took a stake in Nielsen and has been agitating for a sale. If Kantar merged with one of those groups, it could sell extra services to clients and cut overlapping costs.

Still, the price looks steep at 3.5 billion pounds, implying a 12 times trailing operating profit multiple. That’s roughly the average of Nielsen and French peer Ipsos, on Refinitiv data, but those companies are at least growing. Kantar’s sales dipped almost 2 percent last year. The risk is that it keeps losing market share to more technology-savvy peers. Moreover consumer-goods companies, under threat from Amazon, are nowadays cultivating their own data hoard, rather than relying on second-hand surveys from the likes of Kantar.

At the mooted valuation, then, Read would have secured a premium multiple for a shrinking asset, netting him more proceeds to reduce his 5 billion pound debt pile. Meanwhile, retaining a minority stake should guarantee him continued access to Kantar’s data. The only problem is if buyout groups notice they risk overpaying.


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