• Home
  • Blog & News
  • ANN7 sale should have entrepreneurs asking themselves what their business is worth

ANN7 sale should have entrepreneurs asking themselves what their business is worth

On Monday, 21 August, we spoke to Bruce Whitfield on The Money Show on Radio 702 and Cape Talk of that day’s R450 million sale of the Gupta media assets, ANN7 and The New Age, to Mzwanele “Jimmy” Manyi’s consortium, Lodidox.

 

The feature focused on the business valuation of media assets and made business owners aware of the importance of a correct business valuation in assessing their enterprise as an Asset of Value when they put it on sale.

 

The feature also highlighted the methods of business valuation, the risks involved for the buyer and why they should be aware of these factors.

 

So how was the valuation of R450 million arrived at and what methodology was used to reach that figure?

 

We start with the historic performance of the business and take it from there. The way to value a business asset is the discounted free cash flow method, which has three levers to it.

 

The 3 levers

 

The first lever is how far into the future can this business operate? Will it last? Will it perform in the future the way it has performed before? Does it have good growth prospects for the future? The longer you can see into the future, the higher the valuation.

 

The second lever is the seam of free cash flow. How much money will the business make each month? How thick is this seam of free cash flow? The thicker the seam, the higher the value of the business.

 

The third lever is the risk of sustainability. When you look at these three levers and make an assessment of each, you can put together a model for valuation.

 

Evaluating the risks

 

What sort of profits are the two media companies making to justify the R450 million price tag?

 

There are areas of risk to consider here:

 

  1. Risk of supply – ANN7 is linked to DStv. What is that relationship like? Is it stable? If DStv switches off ANN7, there is no TV station. On The New Age front, what is the relationship with the printers because printing and distribution are primary costs? One needs to have a better understanding of these aspects. Does the newspaper have a digital strategy? The business model of media is being disrupted by digital for example, the biggest beneficiaries of the advertising industry in South Africa is Facebook, which is robbing the media industry of revenue.

 

  1. Risk of delivery – What sort of staff do they have? Is this stable? What is the distribution like? Also, the most worrying part in any valuation is annuity revenues. Do you wake up every day having to sell or do you have long-term contracts with your advertisers? If you do, are there advertisers that make up more than 10% of your revenue? If you have a big advertiser that makes up most of your revenue, you are under tremendous risk. All these elements scale back dramatically from the valuation of the business.

 

  1. Risk of demand – Is the business made up by customers who consume the product and who advertises it? Are there customers who make up more than 20% of revenue and will they stay? What is competition like for these customers and what value can your competitors add over and above what you have to offer. Holding onto customers in a ‘buyer’s market’ holds many challenges to sustainable revenues!

 

  1. Contextual risk – This may take the form of changing consumption habits, technology and new competitors entering the market. Evaluate the risk and start mitigating it with a real plan. How do you ensure your supply and distribution and how do you sustain the demand or plan for the contextual risk of falling demand?

 

  1. Team Risk – Who is buying and who is selling? Does the buyer have the technical, strategic and operational skills to run the business? Also, this business is made up of people – they are walking assets. Will they stay or go and have the key people been locked into the deal?

 

If you look at the R450 million price tag, a thumb-suck method to see what kind of profit you should make out of the business to earn that price tag is to apply the PE, a future earnings ratio.

 

What sort of P:E ratios are coming out of the media sector? They are dismal. It’s very hard to find a pure play, in other words, a pure media business that has newspaper and TV that you can get good comparisons from. Looking at the P:E ratio of similar companies allows you the ability to evaluate if your P:E ratio is in line with industry levels.

 

Several elements may affect your free cash flow or P:E ratio, which is dramatically reduced if your business is unlisted. If you are a pure-play business and have not diversified your offering, this may reduce your value. A business with a pure-play offering may not recover if its product offering becomes less attractive. The environment of the sector or industry will also impact on your value. This is evident in the media industry at the moment and makes the ANN7 and The New Age sale an interesting example. Finally, your barriers to entry or licences to trade in a certain industry will also have an effect.  

 

For this price tag, this business should be generating a minimum of R95 million per annum. Is it? We don’t know. If it’s not, the buyer will burn!

 

The valuation of a business is a complex process and you need to weigh up several issues to achieve an accurate appraisal.

 

Aurik Business Accelerator works with entrepreneurs to build their businesses into an Asset of Value and, if the entrepreneur chooses, it can be sold for a premium price.



 

Tags: AoV Mindset, The Money Show, Sales, Business Exit

Big Questions from Business Owners Like You
The Money Show Growing business value Growing Business Systems

Big Questions from Business Owners Like You

On The Money Show with Bruce Whitfield, Pavlo Phitidis set out to answer some big questions from business owners, like you:

Read more

Small Business Financing: To Debt, or Not to Debt?
Business Opportunities The Money Show Business Growth

Small Business Financing: To Debt, or Not to Debt?

Finding the right small business financing solution for your growing business is critical. Is going into debt the right option...

Read more

How to Protect Your Margins & Grow Your Business in a Cost Inflationary Environment
The Money Show Accelerating Growth Business Growth

How to Protect Your Margins & Grow Your Business in a Cost Inflationary Environment

Everyone is beginning to feel the pressure of an increase in VAT, petrol levy, and other price increases. Rising costs will...

Read more

The Key Components of Collaboration
The Money Show Building your Business Business partnership

The Key Components of Collaboration

While we’ve been looking to fill 13 positions within our company, Pavlo has also been dealing with several international...

Read more

How to Present Yourself Online
The Money Show Building your Business Strategy Online business

How to Present Yourself Online

How you present yourself online is an all-important component for your personal, and business, brand. On this week’s The...

Read more

Business Accelerator 2018
The Money Show Business Development Building your Business

Business Accelerator 2018

Business accelerator programmes can be great catalysts for your growing business. Getting the right kind of help as a business...

Read more

How to get the right headspace to survive and thrive in tech-driven opportunities and change in your business
The Money Show Building your Business Business Growth

How to get the right headspace to survive and thrive in tech-driven opportunities and change in your business

Increasingly, technology plays a deeper and more pervasive role in business, and in our lives. Importantly, technology that...

Read more

Building the future we want as business owners in SA
Business Opportunities In the News Positioning your Business

Building the future we want as business owners in SA

South African entrepreneurs can play a big role in bringing the promises made during this year’s State of the Nation Address...

Read more

Kushesh Express, achieving rapid growth in a competitive environment
Growing business value Asset of Value Building your Business

Kushesh Express, achieving rapid growth in a competitive environment

Kushesh loosely translates to “very quick” and is a fitting name for courier company Kushesh Trading, which services the...

Read more

Innovation and Entrepreneurship
Blog In the News The Money Show Innovation

Innovation and Entrepreneurship

I recently hosted an innovation workshop for more than 100 franchisees and a franchisor of a well-established, successful...

Read more

Small Business Venture Capital Investments: What You Should Know
The Money Show Growing business value Building your Business Business Systems

Small Business Venture Capital Investments: What You Should Know

Section 12J investment funds are an attractive option for investors. When first created during the mid-1990s as part of the...

Read more

Build Your Business with these 5 Habits
AoV Mindset The Money Show Asset of Value Building your Business

Build Your Business with these 5 Habits

Welcome to 2018! A whole year ahead, to plan, implement, and prosper. I hope you had a great break, and were able to gain...

Read more

What Entrepreneurial Opportunities Await in 2018?
In the News The Money Show Growing Strategy

What Entrepreneurial Opportunities Await in 2018?

The tumultuous events of 2017 have already shaped the entrepreneurial opportunities for 2018. The innovators respond first,...

Read more

Start your Strategic Planning for 2018
The Money Show Growing business value Business Strategy Business Growth Strategic Planning

Start your Strategic Planning for 2018

2017 has been a rough year, for everyone. At every level, corruption has put paid to so much, and the dismal economic growth...

Read more

How to write the right kind of business plan
Business Opportunities The Money Show Business Systems Business Growth Business Plan

How to write the right kind of business plan

I’ve recently read through oodles of business plans, with a sample of ten showing me that: 4 were applying for growth funding;...

Read more

A Succession Planning Strategy for Your Business
The Money Show Succession Business Exit Business Succession

A Succession Planning Strategy for Your Business

The resignation of Robert Mugabe and the current race for power within the ANC have highlighted the importance of succession...

Read more

Critical strategies to future-proof your business
Growing business value Business Development Growing Focus Business Growth

Critical strategies to future-proof your business

Even for established businesses, it’s not easy to make sure that you will be ready for whatever might happen in the future....

Read more

How to start a business (or your career) from nothing
The Money Show Creating Time Growing Goals

How to start a business (or your career) from nothing

My recent meetings with people across the country have revealed that we have so much human potential, and yet such low morale....

Read more

Learning Resilience, to Build your Business during Tough Times
The Money Show Growing business value Building your Business Growing Accelerating Growth

Learning Resilience, to Build your Business during Tough Times

Simply reading the news headlines can be downright distressing, and government’s lack of adequate response towards corruption...

Read more

How to build your Business into an Asset of Value that is ripe for selling
Growing business value Asset of Value Sales Accelerating Growth

How to build your Business into an Asset of Value that is ripe for selling

Every business owner should be concerned about whether they will be able to sell their business for a good return when they’re...

Read more

What to do when you’ve made the wrong investment for business growth
In the News The Money Show Growing Strategy Accelerating Growth

What to do when you’ve made the wrong investment for business growth

Earlier this week, the South African Minister of Finance presented the Medium-term Budget, and the news was somewhat disheartening....

Read more

Get with the Aurik programme to ensure company growth
Growing business value Business Development Building your Business Company growth

Get with the Aurik programme to ensure company growth

Business owners are bracing themselves for tough economic times with SA’s downgrade to junk status and a gradual economic...

Read more

From a small family-owned business to an internationally recognised operation
Case Studies Business Development Family Business

From a small family-owned business to an internationally recognised operation

How did Liquid Movers quadruple their baseline turnover? The family-owned business joined the Aurik programme to grow its...

Read more

Delegate, you must: if you want to sell your business one day
Asset of Value Sales Business Exit

Delegate, you must: if you want to sell your business one day

Despite what you may think or feel, doing it on your own won’t set you on a pathway to success. You can’t build a business...

Read more