Media Fortune Fame & Folly

Global UK bets big on digital

Global Media & Entertainment, the UK’s largest commercial radio company, has paid a reported £450m to acquire Exterion, the £370k-revenue outdoor advertising group which has a 20% share of outdoor advertising in the UK and also operates in Ireland, France, the Netherlands and Spain. It has the advertising contracts for the London underground and rail networks, for mass-transit systems in Newcastle, Liverpool, and Glasgow, and buses right across the UK.

The deal follows Global’s September purchase of Primesight and Outdoor Plus and means that, in just four weeks, the privately-owned radio and music group has splashed some £750m to become a 35% UK leader (head-to-head with global leader JCDecaux) in out-of-home (OOH)  advertising.

The three acquisitions (all from private equity) have almost doubled Global’s workforce to more than 2,000. They highlight the increasingly ambitious strategy of a group which was formed in 2007 by the successive acquisitions of UK radio networks from Chrysalis, GCap, and The Guardian.

Those radio deals brought together some of the UK’s most popular broadcasting brands including Capital, Heart, LBC, Classic FM, Smooth and Radio X. They also created an unwelcome profile for the Global boss Ashley Tabor. He’s the son of Michael Tabor, a British tax exile who has amassed a fortune from a smudgy lifetime of bookmaking, horse-breeding and property.

Almost 50 years ago, Tabor Sr was banned from all UK racecourses for allegedly paying jockeys for information. Ashley himself attended a 400-year-old British boarding school but left at 16 to work in go-for jobs with radio stations and music companies. Along the way, he claimed the credit for discovering some well-known artistes. He moved into festivals and music publishing, and introduced his father to entrepreneurs like Simon Cowell.

That was the spark for the Tabor family strategy to gatecrash the UK radio business. Along with fellow British and Irish gamblers and currency speculators scattered across the tax havens of Monaco, the Channel Islands and the Caribbean, Michael Tabor ponied up some £400m for his son’s leap into UK broadcasting’s big league.

The 2007 launch of Global is now credited with the resurgence of the country’s commercial radio, although it did coincide with Bauer’s acquisition of EMAP radio which has led to the German company’s broadcast expansion across Europe. Global’s revenue has increased 34% during 2009-17, and radio has held steady at almost 6% of all UK ad spend during a period when the internet has been gouging almost every other media category.

In a country where the tax-funded BBC still gets more than 50% of the radio audience, regulator Ofcom says Global has 22.8m weekly listeners (42% of the whole commercial radio audience) comfortably ahead of Bauer’s 17.4m (32%).

Although the stats show that the growth of 35-64 year listeners is camouflage for a steady fall-off in 16-34 year olds, UK commercial radio is in good shape as it celebrates its 45th anniversary. Against all the odds of an economy that was blitzed by the 2008 banking crisis and is being depressed now by the unknowns of Brexit, Global is proving to be a good investment for its sun-tanned owners.

In 2017, it made EBITDA profit of £77.8m on revenues of £302.6m (a 26% margin). This might imply a valuation of almost £1bn, especially if radio advertising keeps growing at 5%+ as forecast (it was a market-beating 12% up in the first quarter of 2018).

Profits have generally been buoyed by the UK’s 2010 deregulation of radio which relaxed the restrictions on ownership and content – in response to the sector’s previously precarious conditions. So, with end-2017 net liabilities of £350m, Global is one traditional media business that is not disappointing its investors. More so because they own the UK business through a Jersey-based holding company (ultimately owned in the zero-tax British Virgin Islands) which eliminates taxable profits by charging interest rates of up to 15% on their loans. So, the company has continued to declare “a statutory loss” throughout a decade of undoubted success. It does its best to avoid coverage: no media company was ever more media-shy than Global.

The tax planning may help to motivate its £3m-a-year charitable fundraising and London’s Global Academy which was opened two years ago by the country’s two most popular Royal princes. But, then, there’s the jarring picture of  the low-profile founder paying £100m for the most famous apartment in London. Insiders snipe that Ashley Tabor’s relationship to Global’s main investor is clear from his £4m average remuneration. But the company’s dominant position in UK commercial radio, its slowing growth, and fears of some kind of future tech disruption, has had Tabor searching for future growth options.

Like CBS and Clear Channel in the US, in previous years, and HT&E (formerly APN) in Australasia currently, Global has alighted on radio’s potential fusion with OOH, whose enduring appeal has been its ability to reach all consumers. The growth of digital OOH creates the opportunity to augment the advertising with video and live broadcast content including news, sport, weather, and retail. It can also be personalised through interaction with geo-tracked smartphones which themselves account for an important part of the radio audience.

It’s easy to understand why broadcasters are so appetized by the potential convergence: “away from home” audiences have geographical flexibility and are reached in a variety of mindsets including at the point of purchase or visit. OOH also enjoys low levels of the “advertising avoidance” that, arguably, has helped to drive younger audiences from traditional media.

Advertisers increasingly see digital OOH as a way to connect the dots between what costumers are doing online and on the street. That’s why Ashley Tabor has paid such a high price to be a major player. The £300m that Global reportedly paid for Primesight and Outdoor Plus was some 30x operating profit and almost 3x revenue. And, now, the £450m paid for Exterion is 20x EBITDA. But, unlike Global’s 26% profit margins, these OOH companies struggle to reach double digits, none more so than Exterion which last year doubled its margin to all of 6%.

That’s only the start of the worries, because so much of Exterion’s revenue comes from assets that are leased not owned. A single deal with Transport for London may account for 40% of all revenues and it’s only got six years to go before the next auction.

It prompts the simple question of whether OOH digital services, in becoming a broadcast medium, might yet lead Amazon, Google, Facebook and Netflix to start bidding for these contracts. Is it just possible that by, diversifying into OOH, Global is effectively inviting into its (so far) undisrupted world, the very digital companies that have monstered every other category of media? Another big gamble.

Global Media