Media Capital: A Bet on European Media Consolidation

This article is for informational or educational purposes only, and not intended as personal financial advice. You should encourage to seek professional advice before making investment decisions.

Grupo Media Capital Business Overview

Grupo Media Capital (MCP) is a leading multimedia conglomerate listed in Portugal, owning top-rated television channel TVI. It also operates IOL, one of Portugal’s main domestic internet portals, and is active in film production, distribution, and live events.

Founded in 1988, Grupo Media Capital has grown to become a major force in the Portuguese media landscape. The company began as a radio broadcaster before expanding into television in 1992 with the acquisition of TVI. Since then, Media Capital has grown its portfolio across a multitude of media channels, including digital platforms and live events. The group has been under different ownership structures, notably Prisa, a Spanish media conglomerate, which was the largest shareholder in Media Capital from 2005 until 2020.

In 2019, Cofina Media, one of the leading media groups in Portugal, attempted to acquire Media Capital from Prisa in a public takeover offer which would have required Cofina to issue a substantial amount of new equity. This equity issuance did not find sufficient demand reportedly due to the deterioration of market conditions, and the deal fell through.

In 2020, a significant stake (currently 35%) was acquired by Pluris Investments, a company controlled by Portuguese businessman Mário Ferreira, with other Portuguese businessmen and celebrities taking over the rest of Prisa’s ownership in the company. Mario Ferreira then became the chairman of Media Capital, marking a new chapter in the company’s history.

In 2022, Media Capital sold its radio arm to Bauer Media Audio for approximately €70m, refocusing its activities on TV and audiovisual production.

In July 2023, Media Capital launched an offer to acquire 100% of Cofina for an enterprise value of €80m, in an interesting twist of the events of 2019. This offer followed another bid made earlier in the same month by existing shareholders and managers, to take the company private for €75m. Further below in this article we expand on the topic.

Who are Grupo Media Capital’s competitors?

The media and entertainment industry in Portugal is competitive, with several players vying for market share across various channels. Grupo Media Capital’s main competitors include:

• Grupo Impresa: operates across television, with its flagship channel SIC and multiple affiliated channels, and a few print and digital publications. SIC is the main competitor of Media Capital’s TVI — both tend to fluctuate around 5–6% audience shares (2022 data).
• Cofina Media: Known for its broad range of print publications, it owns popular tabloid ‘Correio da Manhã’ and associated TV channel ‘CMTV’, as well as business newspaper ‘Jornal de Negócios’, and sports magazine ‘Record’. Cofina also has its own range of digital portals.
• RTP: The public service broadcasting organization in Portugal, it runs several television and radio channels, both domestically and internationally. It is #3 after TVI and SIC, with c.4% audience share.
• Global Media Group: This company owns major newspapers like Diário de Notícias and Jornal de Notícias, and radio stations such as TSF, but is not a competitor in TV.

Audience share throughout 2022 (%). Source: Mediamonitor/GFK.

Media Capital growth drivers

The Portuguese media market in 2022 was valued at around €1 billion and is growing at c.5% annually according to IPG. TV and radio broadcasting continue to be robust, capturing a large share of the Portuguese audience. TVI’s daily news broadcast captures over 500,000 viewers (link), significant in a country with a population of 10 million. As of 2022, TV still accounts for over 50% of total advertising spend according to IPG, and TV ad spend is growing at 5%. Radio has a smaller market share but ad spend on this format is also growing 4%.

Nevertheless, rapid digital transformation and shift in consumer habits have fuelled growth in digital media. The increasing penetration of the internet, coupled with the rising adoption of smartphones, has expanded the reach of online media platforms significantly. Digital advertising spend is consequently on the rise — up 30% in 2021, but still with a market share of just 30% (vs. Western Europe average of 60%) according to IPG.

TVI’s digital properties may benefit from these trends and see accelerated growth, however TVI’s traditional properties are likely to just maintain their audience share, which has been relatively stable over time, and see revenue growth in line with the market.

Media Capital’s acquisition of Cofina

As previously mentioned, Media Capital is in the process of acquiring Cofina for an enterprise value of €80m. The combined group would have pro-forma revenues of over €225m, making it the absolute leader in Portuguese media, ahead of Impresa which generated €185m in 2022. The proposed acquisition is to be struck at a multiple of 9.4x Cofina’s €8.5m EBITDA LTM June-2023, which is accretive vis a vis Media Capital’s negative EBITDA.

Additionally the acquisition is likely to generate material synergies given the geographic and horizontal overlap of the businesses. In 2019, Cofina had projected synergies with a net present value of €46m from its acquisition of Media Capital. While details are not available, assuming these synergies were valued at the transaction multiple of 7.2x EBITDA would translate into an implied run-rate EBITDA impact of approximately €6m. We note that these were estimated when Media Capital still had its radio business, and therefore may be smaller now, but not meaningfully since Cofina does not have radio operations of their own.

The illustrative Media Capital / Cofina merger model below shows estimated pro-forma financials assuming a fully debt-financed transaction closing at the end of 2023, at an enterprise value of €80m and net debt of €45m.

High-level merger model (all figures in million €)

Media Capital financials

We expect revenue of the combined group to grow in line with market trends, i.e. around 5% per year. Media Capital has experienced a softening of its gross margins in recent years, where we expect some recovery, to 15% by 2025. Cofina enjoys 50%+ gross margins which we expect to remain stable.

Both companies have optimized their fixed cost base and reduced headcount vs. pre-pandemic levels — we expect no further reductions and that going forward opex should grow in line with revenue. Given the asset-light business model of media companies, capex and net working capital are relatively small and expected to stay at similar levels. We build into our model €5m run-rate synergies which kick in from 2025 onward — slightly conservative compared with our backsolved €6m estimated by Cofina in 2019.

Based on the above, we could see the combined group generating €261m revenue, €29m EBITDA, and €9m net income by 2025.

Valuation of Media Capital

Media Capital’s currently negative EBITDA means that it must be priced by investors on its forward earnings or on revenue. Unfortunately, limited equity research coverage means that it’s difficult to grasp the market’s view on Media Capital’s future performance, and therefore to derive the implied multiple. Investors may be assuming a return to historical EBITDA margin levels, or focusing on revenue for now — Media Capital trades at 0.8x EV / LTM revenue, which is in line with Impresa (0.7x) and not far off from Cofina (1.1x).

We expect that the combined, EBITDA-positive group would trade on this metric and in line with industry peers. Key reference points are Cofina’s current multiple of 5.8x LTM EBITDA, Impresa’s 9.3x, Prisa’s 7.3x, Atresmedia’s 5.3x, MFE’s 5.8x, and Sanoma’s 8.5x — the group trades at an average of 7.3x. For reference, Cofina’s proposed acquisition of Media Capital in 2019 was at a multiple of 7.2x.

We do not disclose our target price.

This article is for informational or educational purposes only, and not intended as personal financial advice. You should encourage to seek professional advice before making investment decisions.