Confidential January 2014 PRELIMINARY | SUBJECT TO FURTHER REVIEW AND EVALUATION These materials may not be used or relied upon for any purpose other than as specifically contemplated by a written agreement with Credit Suisse AG or its Affiliates (hereafter “Credit Suisse”). Channel 5 Discussion materials
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Confidential
January 2014
PRELIMINARY | SUBJECT TO FURTHER REVIEW AND EVALUATIONThese materials may not be used or relied upon for any purpose other than as specifically contemplated by a written agreement with Credit Suisse AG or its Affiliates (hereafter “Credit Suisse”).
Channel 5
Discussion materials
Confidential
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Credit Suisse is one of the most active advisers in the media sector in Europe
1
Key examples of Credit Suisse expertise across all media sub-sectors
Pay-TV / cable / IPTV De Agostini acquisition of Zodiak Sole advisor on merger of Showtime and Orbit Mandated on Digiturk IPO Swisscom acquisition of Fastweb Sale of Premiere stake by Unity Media IPO of Premiere IPO of Neuf Cegetel IPO of Versatel
Sole Bookrunner in ITV bond Broker to ITV Acquisition of ATV – Sabah by Calik Acquisition of Zodiak by De Agostini IPO of Media Capital Antena 3 listing IPO of Endemol and subsequent acquisition financing KKR / Permira acquisition of ProsiebenSat1 Acquisition of Alliance Films by Entertainment One
FTA TV / content
Internet Sale of Ogone to Summit Partners Sale of Friends Reunited to Brightsolid IPO of Moneysupermarket.com Sale of Venere to Expedia Sale of Gate5 to Nokia Acquisition of Poliris (leading French property portal) by 3i 123 Multimedia IPO
Professional publishing / business information
Adviser on sale of UBM Data Services division Advisor on the acquisition of a majority stake by Hellman & Friedman in
Wood Mackenzie Adviser on sale of Cerved Adviser to Seat on sale of WLW to Bisnode Broker to UBM and DMGT Adviser and sole MLA on the acquisition of Bureau van Dijk for BC Partners
Capital Radio / GWR merger Lead financial advisor to GCap Media plc on its sale to Global Radio
Sole Bookrunner in Controlinveste exchangeable bond Acquisition of ATV – Sabah by Çalik Sale of Süddeutscher Verlag IPO of Vocento Axel Springer / ProSiebenSat1 financing Active on many other deals such as DMGT / Northcliffe
Newspaperpublishing
Radio
Selected media transactions
Financing and IPO transactions
€6,630,504,000
July 2007
Snr. Sec. Facilities €501,378,000 Mezz. FacilityMandated Lead Arranger and Joint Bookrunner
Acquisition byand
Initial Public Offering€334,000,000
November 2006
Joint Global Coordinator and Joint Bookrunner
July 2011
Acquisition of BvD by Charterhouse and related financingFinancial Advisor and Joint Bookrunner
€940,000,000
Initial Public Offering
£168,000,000
Joint Global Coordinator
April 2011
M&A transactions
£375,000,000
June 2008
Sale of GCap Media plc to Global Radio
Lead Financial Advisor and Broker to GCap Media plc
£25,000,000
March 2010
Sale of Friends Reunited
Exclusive Financial Advisor to ITV
Undisclosed
July 2009
Merger of Showtime Arabia and the Orbit Group of CompaniesExclusive Financial Advisor on the merger
£1,100,000,000
July 2012
Acquisition of a majority stake in WoodMackenzie by H&F Financial Advisor to H&F
C$225,000,000
January 2013
Acquisition of Alliance Films by Entertainment One
Financial Advisor to Entertainment One
$3,300,000,000
May 2011
Acquisition of Warner Music by Access Industries
Lead Financial Advisor to Access Industries
October 2009
Convertible bond
Joint bookrunner
£135,000,000
£160,000,000Sale of UBM Data Services division to Electra Partners
February 2013Financial Advisor
€780,000,000
January 2013Lead Left Bookrunner
High Yield financing for Cerved LBO by CVC
€3,300,000,000Acquisition of Springer Science + Business Media by
July 2013
Financial Advisor and financing bank
$1,591,000,000€615,000,000Senior secured First Lien Term Loan
July 2013Lead Left Bookrunner
€1,300,000,000
Secondary public offering
April 2013Joint Bookrunner
Confidential
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Credit Suisse was involved in some of the highest profile transactions of 2013
2
EMEA rankings based on deals announced
Key M&A awards
Credit Suisse deal highlights
$3.9bn
Acquisition of the remainder in MAN SE
Pending
Financial Advisor
$24.4bn
Merger with Virgin Media
2013
Financial Advisor
$2bn
Merger with Sorouh Real Estate
2013
Financial Advisor
$4bn
Merger with Atlantia SpA
Financial Advisor
$2.2bn
Unsolicited bid for 44% of the company by a Kazakh consortium
2013
Financial Advisor
Pending
$2.9bn
Acquisition of the remaining 49% in Itera Oil & Gas from Itera OGK
2013
Financial Advisor
$4.4bn
Acquisition of a Springer Science+Media
2013
Financial Advisor
$3.9bn
Sale of the company by DLJ and TPG
Pending
Financial Advisor
$2.5bn
Sale of Mozambique oil & gas assets to ONGC
Pending
Financial Advisor
$982 $797 $697 $656 $559 $533 $532 $474 $452 $423
27.8
22.619.8
18.615.8 15.1 15.1 13.4
12.8 12.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
0
200
400
600
800
1,000
1,200
GS MS DB JPM CS Barcl Citi Roth BAML UBS
Value ($bn) Mkt. share
Best M&A House Western Europe
Best M&A House in the Emerging Markets
Consumer Advisor of the year
Iberia Advisor of the year
Domestic deal of the year RBS/Worldpay
Austria and Switzerland Advisor of the year
2011 and 2013
Source: dealogic based on deals announced since 2008.
Confidential
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3
Leading UK M&A house with an unrivalled depth of experience across a range of complex situations
Credit Suisse has a strong record advising its UK clients on transformational acquisitions and disposals…
Our non-UK clients seek our expertise in cross border deals into the UK
Credit Suisse also has extensive experience advising on private equity transactions
…as well as bid defence and sellside roles
Defence / sale
Cross border acquisitions
£860m
Sale of Company to
Financial advisor2011
£2.4bn
Sale of Company to
Financial advisor2011
£2.9bnSale of Company
to
Financial advisor2010
$24.1bnAcquisition of
Financial advisor2013
£3.4bnAcquisition of
Financial advisor2013
£97.6bnDefence from an unsolicited offer
from
Financial advisor 2008
Sponsor M&A
£1.4bnAcquisition of
Financial advisor2012
$4.4bnAcquisition
Financial advisor2013
$4.4bnAcquisition of Mey Icki from
Financial advisor2011
$1.0bnSale of
to Itochu
Financial advisor2011
£500mSale of KP Snacks to
Financial advisor2013
Sale of Company to
Financial Advisor2012
$3.6bn
Acquisition of
Financial Advisor2012
$2.0bn
Packaging
£3.2bnAcquisition of
2013Financial Advisor
£340mAcquisition of
Financial advisor2013
£1.6bnAcquisition of
Financial advisor2013
Acquisitions, disposals and mergers for UK clients
$26.8bnSale of BP’s 50%
stake to
Financial advisor2013
Merger with
Financial Advisor2013
$48.5bn$3.3bnAcquisition of
Division of
Financial advisor2013
$4.4bnSecured majority
control of
Financial advisor2012
Joint acquisition of
with GVC
Financial Advisor2013
$800m$2.6bn
Acquisition of 20% of
Financial advisor2013
£6.4bn
Buy-out by founders
Financial Advisor2013
€850mAcquisition of
Financial advisor2013
Confidential
1. Snapshot of Channel 5
4
Confidential
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Snapshot of Channel 5
5
Company overview
Key programmes
Business overview
The group’s original channel, Channel 5, is the fifth and final national terrestrial analogue network to launch, after BBC One, ITV, BBC Two and Channel 4− As a free-to-air TV broadcaster, it mainly broadcasts entertainment
programming, such as reality television, game shows and imported American drama
− It is the fifth most popular channel in the UK, claiming a 4.2% share of viewing throughout 2012
− In a typical month the channel reaches 45 million people− In 2012, Channel 5 accounts for 7.3% of TV advertising revenues
in UK(1)
The group also owns two digital channels, 5* and 5USA, which were launched in 2006− 5* targets16–34 year-old viewers with a mix of soaps, movies,
entertainment, drama and documentaries− 5USA brings UK viewers the best American drama series and
classic American action movies Other offerings include Channel 5’s video-on-demand service
Demand 5, providing viewers with online access to much of the channel’s peak time schedule − Channel 5 is the first UK terrestrial broadcaster to offer a download
service− The catch-up service is available on a range of platforms including
web (e.g. Demand 5 website, YouTube), television (e.g. BT Vision, Sky, YouView), game consoles and mobiles
Source: Company filings, press release.(1) Ofcom Communications Market Report 2013.
Founded: 1997
Headquarter: London, UK
Ownership: Wholly-owned subsidiary of Northern & Shell
(owned by British publisher Richard Desmond)
Key financials: 2012A revenue: £326 / €400 million
2012A EBITDA: (£4) / (€4.9) million
Big Brother
Group’s channels
Confidential
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Key strategy
6
Multi-channel approach
The group owns a portfolio of channels with different focus
− Channel 5 provides viewers with a varied mix of programming which includes entertainment, sport, documentaries, kids, drama, News and films
− 5* provides pre-school shows under the Milkshake! Banner as well as dramas, films, soap operas and popular factual and lifestyle shows
− 5USA offers drama, films, sport, comedy and youth programming from the US
Brand defining content
A key strategic goal is to increase revenue streams through the development, ownership and exploitation of programming content
− A number of shows developed and co-produced internally and increased resources earmarked to be allocated to the in-house production business (e.g. News service brought in-house in 2012)
− Increased investment in the programming schedule on brand defining content with appeal to both audiences and advertisers (e.g. the most successful commission Big Brother secured in 2011)
Digital platform
The group continues to invest in digital platforms and is well placed to respond to technology-driven changes in viewing preferences
− c.2 million downloads of the Demand 5 iPad App and over 1 million downloads of the Xbox App since 2011
− Launch of Demand 5 on Windows 8 and Samsung connected TVs in 2013
− Major partner in the YouView consortium, the next generation of internet protocol digital terrestrial television service
Confidential
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Paul DunthorneChief Operating Officer
Nick BamptonDirector of Commercial Sales
Ben FrowDirector of Programmes
James TatamDirector of Digital Media
Channel 5Management and key decision makers
7
Former Managing Director at N&S’ TV business Portland TV Has worked at N&S for more than 15 years and promoted as Channel
5 COO in November 2012
Re-joined Channel 5 in November 2011 Former Director of Programming at Irish broadcaster TV3; other
extensive working experience includes Channel 4, BBC and ITV
Re-joined Channel 5 in November 2010 Former Managing Director at Viacom Brand Solutions and founder of
media start-up The Third Way
Held senior positions at Channel 4 and BBC, focusing on digital platform development
Richard DesmondFounder and owner of Northern & Shell
Robert SandersonFinance Director of Northern & Shell
British publisher and businessman Has been media entrepreneur throughout his working life; founded
Northern & Shell in 1974 at age of 21 and since then he has developed the group into all main sectors of specialist and consumer publishing as well as television, radio, book publishing and internet activities
Joined Northern & Shell in 1995 as Financial Controller, became Deputy Finance Director in 1998 and took up his present position since 1999
Previous work experience includes Financial Accountant at Reuters Group, Grant Thornton and international PR company Shandwick
Key management
Key decision makers at N&S
Confidential
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Key historical financials
8
Revenue EBITDA(1)
EBIT(1) Net income(1)
344
272290
356
326
2008 2009 2010 2011 2012
12.2
3.6
13.1
39.9
(4.0)
2008 2009 2010 2011 2012
0.4
(8.5)
0.3
27.0
(16.6)
2008 2009 2010 2011 2012
(18.3)(12.0)
17.9 26.9
(26.2)
2008 2009 2010 2011 2012
Source: Company filings (Channel 5 Broadcasting Limited). (1) Pre exceptional expense. EBITDA reported post operating lease rentals and foreign exchange gains / (losses).(2) Source: Financial Times, 1 January 2014.
(FYE Dec, £ millions) (FYE Dec, £ millions)
(FYE Dec, £ millions) (FYE Dec, £ millions)
Financial performance in 2012 negatively impacted by certain high profile events in the year, particularly the Olympics, Paralympics, Euro 2012 and the Queen’s Jubilee, all of which were the broadcasting preserves of the BBC or other principal commercial rivals
The performance in the early part of 2013 (H1 2013 EBIT of £20.6m(2)) underlines the directors’ firm belief that the business has been positioned for growth
Confidential
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UK audience viewing shares evolution
9
As the fifth largest TV broadcaster in UK, Channel 5’s viewing shares have remained stable over the last three years
Source: BARB.
–
5%
10%
15%
20%
25%
30%
Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13
BBC 1 BBC 2 ITV (Inc. HD & +1) Channel 4 (Inc. S4C & +1) Channel 5 (Inc. +1)
Confidential
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UK TV advertising revenue by share
10
Channel 5’s shares in terms of advertising revenue have slightly increased
Source: Ofcom Communications Market Report.Note: denotes Channel 5 power ratio.(1) Includes: ITV2, ITV3, ITV4, ITV breakfast, E4, More 4, Film 4, 5*, others.
Television continues to account for a significant part of advertising expenditure in UK
26.1%
26.4% 27.8% 27.5%
26.6% 26.4% 26.0% 25.6%
39.4%
34.4%
31.3%
27.9%
24.4% 22.1%
20.6% 19.5%
23.0%
27.7% 29.4%
33.3%
37.0%
40.2% 42.2%
43.8%
11.5% 11.5% 11.5% 11.3% 11.9% 11.3% 11.2% 11.1%
–
10%
20%
30%
40%
50%
2008 2009 2010 2011 2012 2013 2014 2015
Television Newspapers and magazinesInternet Others (Outdoor, radio and cinema)
Source: Zenith report as of September 2013.
CAGR
'08 - '13 '13–'15
TV 0.7% 1.5%
Newspapers and magazines
(10.6%) (3.2%)
Internet 12.2% 7.7%
Others 0.1% 1.9%
Confidential
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6.0% 6.2%
5.0%
3.2%
6.8%
Q1-14 Jan-14 Feb-14 Mar-14 2014E
TV advertising net revenue growth (y-o-y%
change)
Research is optimistic about European ad markets
12
Advertising Monitor
2012 2013E 2014E
Germany 1.5 3.0 3.0
UK 0.6 3.1 6.8
France (7.0) (4.0) 2.8
Italy (11.0) (10.5) 4.0
Spain (18.0) (5.5) 11.3
Norway NA 7.0 5.0
Russia 10.3 8.0 7.0
Belgium NA 3.0 3.0
Source: Credit Suisse proprietary survey (European advertising monitor, December 2, 2013).Note: European Advertising Monitor research report from Credit Suisse is frequently publish by our analysts and it talks about
advertising trends in Europe. It is a proprietary survey of European TV media buyers that includes feedback from 20 agencies in 8 territories.
UK media buyers report broad-based strength in the TV advertising market going into 2014
− Growth is expected to accelerate vs. 2013 driven by the strengthening economy and the World Cup
− Advertisers are “responding to positive economic indicators” in Q1 2014, which is giving them confidence to invest at the start of the year
Confidential
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Sale of Channel 5 to Northern & Shell
13
In July 2010, RTL Group, the leading European entertainment network, announced the sale of Channel 5 to the Northern & Shell company owned by British publisher Richard Desmond
− Channel 5 experienced significant revenue and profit decline relative to the market in 2008 and 2009; the company underwent a comprehensive restructuring process at the time of sale
Rival bidders were Channel 4, Time Warner and Endemol
Transaction documentation signed and closed with immediate effect on 23 July 2010
Total cash consideration payable to RTL Group for its 100% shareholding amounted to £103.5 million (€125 million)
− The deal valued Channel 5 at LTM revenue multiple of 0.4x and LTM EBITDA multiple of 12.4x
Source: Company information.
Confidential
2. M&A considerations
14
Confidential
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Situation overview
15
Northern & Shell appointed Barclays to advise on a potential sale of Channel 5
− Process led by Matthew Smith (MD, Head of UK M&A) and Daniel Ross (MD, EMEA IBD Media and Leisure)
Process expected to be a competitive auction, possibly a two-stage process
− NDAs expected to be distributed at the end of January to early February and subsequent distribution of Information Memorandum
− Marketing materials (including Information Memorandum) largely prepared already, now awaiting final version of 2013 numbers to insert
Signing expected prior to the summer break (see timeline overleaf)
Interest so far from a broad array of bidders, although private equity seen to be relatively reluctant
Recently sold Cerved, but still looking for media exposure
Media investments include: The Weather Channel, AMC Entertainment, Sinomedia Holding, Publishing Group of America, Cerved
Media investments include: Trader Media Group, Seat Pagine Gialle, BvD
Has shown interest in cable pay TV assets
Re-focusing attention on media at present and has identified data / growth assets as interesting area
Media investments include: Nielsen, Montecito, The Weather Channel, Houghton Mifflin, Livewire
Proven track record in the media sector Media investments include: All3Media,
ProSiebenSat.1, Asia Broadcast Satellite (ABS), Premiere
Less active in media in recent years but still over all active in the market
Media investments include: Aprovia, Health Central Network, LBI International, Nielsen
Focus in media directed more towards professional information and B2B type assets
Media investments include: TSL, TDF, Wood Mackenzie, Bureau Van Dijk
Very intelligent and innovative investor in media Was involved in Informa process in 2008 Media investments include: Axel Springer, Wood
McKenzie, F1 Holdings, ProsiebenSat1, Advanstar, Eller Media Company, Nielsen
Remains very active in media and looks for unique situations, has FTA experience
Media investments include: ProSiebenSat.1, BMG Rights Management, Primedia, Seven Media Group, Nielsen
TMT focused fund has shown keen interest in SBS and is a keen investor in content assets
Media investments include: JBP Holdings, Warner Music Group, Zenimax Media, RCS Media Group, Digiturk, MGM
Has historically tried to acquire ITV, however recently downgraded interest in Media following some challenging investments
Media investments include: Emap B2B, Trader Media, ALM, Hit Entertainment
Significant exposure to Media and recent good exit from Springer
Media investments include: Gala TV, AcadeMedia, Blizoo, United Digital Group, Springer Science + Business Media
Very limited attention to media in Europe Media investments include: Primedia, Adknowledge,
MGM, TDF, Univision, Findexa, IMS
Most focused on data and online assets, not really a media investor per se
Media investments include: DB Corp., IDC, Tulip Media
£8.9bn Looked seriously at SBS Media investments include: Nine Entertainment
Source: Company information, Preqin.
Confidential
4. Preliminary valuation considerations
24
Confidential
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Channel 5 – Key financials
25
(in £ millions) Historical financials Forecasts
Fiscal year ended Dec 31 2010A 2011A 2012A 2013E 2014E 2015E
Revenue 289.7 356.3 325.7 332.2 338.8 342.2
% growth 6.5% 23.0% (8.6%) 2.0% 2.0% 1.0%
Normalized EBITDA 13.1 39.9 (4.0) 45.0 46.7 47.9
% margin 4.5% 11.2% (1.2%) 13.5% 13.8% 14.0%
D&A 12.8 12.9 12.6 12.8 13.1 13.2
% of revenue 4.4% 3.6% 3.9% 3.9% 3.9% 3.9%
Normalized EBIT 0.3 27.0 (16.6) 32.2 33.6 34.7
% margin 0.1% 7.6% (5.1%) 9.7% 9.9% 10.1%
Capex 5.2 6.0 3.5 5.0 5.1 5.1
% revenue 1.8% 1.7% 1.1% 1.5% 1.5% 1.5%
Changes in NWC 59.6 (3.4) 1.8 (0.5) (1.1) (0.6)
% changes in revenue 5.1% 6.0% 7.5% 17.0% 17.0%
Source: CS IBD estimates.(1) Net working capital includes the following line items: current asset (program inventory, trade debtors, prepayments and accrued
income); current liability (trade creditors, other taxation and social security, accruals and deferred income and other creditors). (2) Source: Zenith report.
Key assumptions
Financial forecasts based on CS assumptions
Channel 5 to return to profit in 2013 with EBITDA of £45m
Revenue for 2013 – 2015 assumed to grow at the same rate with UK TV advertising market(2)
EBITDA margin to improve moderately in 2014 and 2015
Source: Company information, Reuters consensus forecasts, FactSet as of 21 January 2014.(1) Average / median calculations exclude Antena 3 and Telecinco in Western Europe group and exclude CME in Eastern Europe
group, for comparability with the 2013E average / median.(2) Average / median calculations exclude Antena 3, Mediaset and Telecinco in Western Europe group and exclude CEM and TVN
in Eastern Europe group, for comparability with the 2013E average / median.
(1) (1) (2)
Confidential
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Comparable acquisition multiples
28
Source: Company filings, broker research.
(£ in millions)
Ann't.
DateTarget Acquiror Stake Acquired Enterprise Value
LTM
EV / Revenue
1 YR+
EV / Revenue
LTM
EV / EBITDA
1 YR+
EV / EBITDA
Selected FTA Transaction Comparables
10/10/2013 e tv (Pty) Ltd SEARDEL INVESTMENT CORP. 19% 155 NA NA NA NA
07/04/2013 RRsat Global Communications Viola Group 20% 73 1.0x 0.9x 5.8x 5.5x
26/02/2013 Grupo Media Capital S.G.P.S. Vertix S.G.P.S. 10% 313 2.0x NA 8.9x NA
14/12/2012 SBS Nordic operation Discovery Communications 100% 1,078 NA NA 10.0x NA
03/10/2011 StarTV Dogus Yayin Group 100% 211 2.8x NA NM NA
08/09/2011 Bollore Canal+ 60% 244 NA NA NA NA
20/04/2011 Prosiebensat.1 Media AG Sanoma / Talpa 100% 1,083 3.0x NA 10.6x NA
Note: Returns exclude management dilution and exit costs.
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Confidential
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