This month BlueFreeway Limited completes its IPO on the Australian Stock Exchange (ASX) to become a "digital and interactive marketing and communications company". At an IPO price of AUD $1.00 per share it will trade at about 7.9X EBITDA on 2006 Pro Forma EBITDA of AUD $5.7 million coming from 2006 Pro Forma Revenues of AUD $20.7 million.
Simultaneously with the IPO it will acquire the MMH business of Destra Corporation (ASX-DES) for consideration of AUD $19 million (consisting of $18 million in cash and $1 million in stock). Destra is spinning off its 8,000 MMH customers to focus on becoming a "digital media business" largely focused on music. Proceeds from the sale will be used to pay down debt incurred to buy music businesses from Home Leisure (HLD).
The MMH business did about AUD $7.3 million in revenue and AUS $3.0 million in EBITDA for FYE June 30, 2006. It is forecasted to do about AUD $8.6 million in revenue and AUD $3.5 million in EBITDA for FYE June 30, 2007. That equates to acquisitions multiples of 2.6x Price-to-Revenue and 6.3x Price-to-EBITDA looking back at FY 2006 or 2.2x Price-to-Revenue and 5.4x Price-to-EBITDA for the anticipated FY 2007 performance.
A few questions arise for us in looking at this transaction.
The year-over-year growth for the MMH business being sold exceeds 15%. Meanwhile the ARPU (average revenue per unit) is approximately $76 per month ($7.3 million divided by 8,000 customers divided by 12 months). We know very few MMH's with that kind of ARPU that are not in flux, either seeing ARPU decline or increase depending on the new direction of the service offering. Are new customers coming in at a higher or lower ARPU? And how does that impact future value?
This is yet another MMH deal done in the 5.0 to 6.0x EBITDA range even though Destra assumed more risk by selling contingent on BlueFreeway getting its IPO completed. Are these valuations we should expect to continue to see in 2007? Or are things about to change?
