Posts Tagged ‘Offhollywood’

Vitec Group Updates Segment Reporting for Broadcast Division

Annual Results, broadcast technology market research, Broadcast technology vendor financials | Posted by Josh Stinehour
Feb 05 2018

The Vitec Group, which owns more than a dozen brands in the broadcast industry, released an update of its financial performance through the first half 2017 based on its new segment reporting. 

The change followed the Company’s divestiture of its services business Bexel to NEP.  The new structure offers visibility into the two product groups Vitec sells in the broadcast industry.

As of November 2017, The Vitec Group reports across the following three Divisions:

  • Imaging Solutions contains the assets formerly reported in the Photographic division, which is focused on the professional and consumer photographers.
  • Production Solutions groups Vitec’s more traditional broadcast products, including camera supports, robotic camera systems, prompters, mobile power, lighting, along with the remaining service activities of Camera Corps and The Camera Store.
  • Creative Solutions comprises The Vitec Group’s video transmission systems (Paralinx, Teradek), monitors (smallHD), and camera accessories (Wooden Camera, Offhollywood).

One of the stated goals of the reporting modification is to give greater focus to the fast-growing independent content creator market where the Creative Solutions division has a larger presence.

It is interesting to note nearly all of the assets in Creative Solutions were acquired over the past five years.

Broadcast Operating Segment Results

The restated 2016 and 1H 2017 results illustrate the relative revenue contribution and profitability profiles of the Production Solutions and Creative Solutions divisions.

For full year 2016, Production Solutions represented 72.5% of Broadcast sales or £121.6 million.  Creative Solutions had sales of £45.9 million or 27.5% of Broadcast revenue.

When including an allocation for corporative overhead the operating margin profile for Production Solutions was 10.9% during 2016 and 16.8% for Creative Solutions.

During the first half of 2017 (ending June 30) Production Solutions had sales of £55.7 million (64.3% of Broadcast) and Creative Solutions contributed £30.8 million of revenue (35.7% of Broadcast).

Operating margins (with corporate allocation) for 1H 2017 were 9.5% for Production Solutions and 17.2% for Creative Solutions.

Vitec Group did not provide comparable year-over-year period presentations of the Divisions.  However, even using a straight line estimate, it is reasonable to view the Production Solutions as an approximately flat business (year-over-year) in the first half of 2017, as the second half is usually the stronger portion of the year.  Creative Solutions, in contrast, is experiencing strong growth.  The magnitude of growth is difficult to estimate given the inorganic additions to the division with the closing of the acquisitions of Offhollywood and Wooden Camera.  As a reference point, the 2016 restatement lists £20.4 million of investing activities attributable to the Creative Solutions division.

While growing faster, the Creative Solutions division is also meaningfully more profitable with operating margins in the high teens.  Thus, consistent with The Vitec Group’s stated intentions, this reporting approach provides greater visibility into the higher growth, higher margin Creative Solutions division.

In addition, the restatement of 2016 financial results further highlights the merits of the divestiture of Bexel.  This is not a commentary on the quality of Bexel, but rather an observation about the fundamentally different characteristics of Bexel’s asset and capital intensive business, which contrasts with the remaining product businesses.  Consider that during 2016 – the fourth year in the four year industry cycle – Bexel had revenue of £47.7 million, an adjusted (before impairments and restructuring costs) operating loss of £1.4 million, and capital expenditures of £7.1 million.  (It is appropriate to point out Bexel generated operating cash when adjusting for non-cash items and including rental asset disposals).

Full year 2017 results are scheduled for release on February 22, 2018.

Impact of US Tax Change

In the same release, Vitec offered guidance on the impact of the new Tax Cuts and Jobs Act legislation passed in the United States.  The immediate impact to Vitec is a revaluation lower of its US deferred tax balance by £7.0 million.  This is because the lower US tax rate of 21% (versus 34%) means tax losses have less value in the future.

 

 

Related Content:

Vitec Announces Segment Reporting, US Tax and Adjusted Performance Measures

 

 

© Devoncroft Partners 2009-2018.  All Rights Reserved.

 

 

Vitec Group acquires Wooden Camera for Consideration Up to $35 million

Analysis, Broadcast Vendor M&A | Posted by Josh Stinehour
Sep 20 2016

The Vitec Group has acquired Wooden Camera, a provider of camera accessories including baseplates, cages, hand grips, matte boxes, monitor mounts, shoulder rigs, and zip boxes.  deal-logo

Wooden Camera is based in Dallas, Texas and privately owned by its management team, Ryan and Elizabeth Schorman.  Both will remain with business post-acquisition.  Wooden Camera will become part of Vitec’s Broadcast Division.

The press release announcing the acquisitions cites the opportunity to grow Wooden Camera through expanded distribution as part of Vitec’s global sales network.  Also noted in the announcement is the opportunity for Wooden Camera to benefit from Vitec’s manufacturing and product sourcing capabilities.

As part of the acquisition announcement The Vitec Group disclosed portions of Wooden Camera’s recent financial results along with the high-level deal terms.

Wooden Camera generated an unaudited adjusted EBITDA of £1.9 million ($2.5 million) for the 2015 calendar year.   Management indicated Wooden Camera has grown in the year-to-date period of 2016.

The upfront cash consideration is £15.3 million ($20.0 million), which is subject to post-closing adjustments.  The deal also includes a potential earn out representing an additional £11.5 million ($15.0 million) of consideration.  The earn out payments are based on Wooden Camera achieving “demanding” EBITDA targets for the financial periods thru the close of the 2018 calendar year.  The 2018 EBITDA target is $7.3 million (this represents an almost tripling of 2015 EBITDA).   Vitec will finance the transaction using its existing banking facility.

Using the 2015 EBITDA disclosure, the upfront consideration values Wooden Camera at 8.0x 2015 EBITDA (not including the earn-out).  The total consideration has the potential to value Wooden Camera at 17.5x 2015 EBITDA.  Since more than 40 percent of the total potential deal value is in the form of an aggressive earn-out, it is more appropriate to focus on the implied valuation of the upfront consideration.  The multiple of 2016 EBITDA – though unavailable – is likely less since Wooden Camera has continued to grow.

To put these figures in context, The Vitec Group currently trades in the public markets at a valuation of 7.8x trailing twelve month EBITDA and 1.0x trailing twelve months of revenue (on an enterprise value basis).

The press release states “The Board expects the acquisition to be immediately earnings enhancing.”  This statement is then clarified in the notes to the press release as follows, “This statement should not be taken to mean that earnings per share of The Vitec Group plc will necessarily exceed or be lower than historic earnings per share of The Vitec Group plc and no forecast is intended or implied. This refers to earnings before charges associated with acquisition of businesses.”

It is interesting to reflect on the impact of a weaker GBP currency on the transaction pricing.  The “Brexit” referendum of June 23, 2016 precipitated a decline of the GBP versus the US dollar.  A weaker GBP should – on balance – benefit Vitec’s revenue results.  However, it will make expenditures in other currencies more expensive, including the acquisition of a US-based business as is the case with Wooden Camera.  On June 1, 2016 the exchange rate was 1.44 USD / GBP.  The figures in The Vitec Group press release were based on an exchange rate of 1.31 USD / GBP or 9% lower.  Meaning, the acquisition in GBP terms was 9% more expensive because of the recent disruption in the GBP currency.

The Vitec Group often structures its acquisitions with a substantial portion of contingent consideration.  This was also the case in the recent acquisitions of Offhollywood, SmallHD, and Teradek.

Commenting on the acquisition Vitec’s Group Chief Executive Stephen Bird stated, “I am delighted to welcome the Wooden Camera team to Vitec. Wooden Camera’s products are the glue that binds all the building blocks together on a professional camera system.  This leading business complements Vitec’s strategy of providing premium branded broadcast products and services to our customers to capture and share exceptional images. The business has great prospects and we anticipate that it will generate a good return on our investment.”

 

 

Related Content:

Vitec Group Press Release on Wooden Camera Acquisition

 

 

© Devoncroft Partners 2009-2016.  All Rights Reserved.

 

 

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