Print Published 22nd Sep 2012, 15:10

Private equity investors stand to make over €70m from LBi sale

Preliminary calculations suggest that the three private equity investors that backed the merger of the international digital marketing and technology group LBi International with Bigmouthmedia in 2010 will bank a cash gain in excess of €70 million (£56 million) from the sale of their shares to Publicis Groupe – a gain of 102% over the two year period.

That €70 million gain may be augmented by as much as another €10 million (£8 million), being the uplift between the cost of shares in the LBi acquisition vehicle bought in April 2010 and their value on exchange for LBi shares in August 2010.

The three investors were Janivo Holding, The Carlyle Group and Cyrte Investments who between them own over one third of LBi (see Is the Bigmouthmedia deal overvaluing LBi again?).  Michiel Mol, the founder of one of a predecessor companies Lost Boys, will also have seen the value of his shareholding double to €54 million over the same period.

Chief executive Luke Taylor, who rose to that role after LBi acquired the Scandinavian group Framfab, could enjoy a gain well in excess of €4 million (£3.2 million).

As both LBi and Publicis are public companies it would have been possible in theory for Publicis to make an offer that comprised a mixture of shares and cash, thereby reducing the strain on the Publicis coffers.  However, it seems highly probable that the private equity backers would have preferred a clean exit with a pile of cash rather than accept some Publicis shares.   And if the private equity investors wanted cash, it is inconceivable that other shareholders could have been persuaded to sell other than on the same terms.

When announcing the offer last Thursday Publicis said it would finance the offer from “its own readily available resources” and that is had “a strong financial position” (see Publicis offers to buy LBi for €416m).  At 30 June Publicis had net debt of €0.9 billion and shareholders’ funds of €3.6 billion, a healthy debt/equity ratio of 0.25:1.  Even after paying €416 million for LBi, that ratio would remain respectable.   However, the value of goodwill and other intangible assets was very high at €6.4 billion and, if any of its recent major investments were to underperform, this could result in impairment charges that would erode shareholders’ funds significantly.