My last coverage on Nielsen (NYSE:NLSN) dates back to November 2020, after the company reached a deal to sell its Global Connect business at a modest multiple. Ever since, we have the passage of more than a year of time and quite recently some real M&A interest for the business itself at large.
So how to play this situation? Let’s first look at the situation back late in 2020 to judge the options.
The sale of the Global Connect business to Advent in 2020 was a huge deal, as it involved the sale of a business responsible for nearly half of total sales, albeit that these divested activities reported an inferior margin profile.
Nielsen fetched $2.7 billion with the divestment of its Global Connect business, as this outcome was apparently superior (according to management) to a turnaround of the business or perhaps spin-off of the business. The proceeds would be used for debt reduction, or perhaps investments into the core media marketplace business.
This segment generated a nearly 3% fall in revenues in 2019 to $3.1 billion. With EBITDA posted at $422 million, the valuation multiples looked very modest at just 0.9 times sales and 6.4 times EBITDA.
The Nielsen Global Media business posted a 2% increase in sales to $3.44 billion in 2019 on which very fat adjusted EBITDA numbers of $1.48 billion were reported. The overall business posted sales of $6.50 billion in 2019 (the sum of these two activities) on which adjusted earnings of $1.80 per share were reported.
The deal was set to cut net debt to $5.1 billion, as the 358 million shares represent an equity value of $5.0 billion at $14 per share at the time. This results in a $10.1 billion enterprise valuation, equal to 3 times the $3.4 billion in revenues posted by the media segment, and roughly 7 times EBITDA. Given the reduced interest charges, and factoring in the proceeds from the divestment, earnings would likely come in flat around $1.80 per share. This resulted in quite a compelling valuation, despite leverage and tepid growth.
Despite this compelling valuation, at roughly 8 times pro forma earnings, I saw that Nielsen was a one-trick pony, with the media business not being isolated either from secular headwinds, which prevented me to get aboard.
While the valuation was cheap, I was fearful about the continued disappointment of the business, including transaction costs and continued restructuring of the business. Shares rallied to the $20 mark late in 2020, hit a high of $28 per share in the spring of 2021, as shares fell back to the $20 mark by the end of the year.
Early in 2021 the company posted its 2020 results with revenues down 3% to $6.3 billion as full year adjusted EBITDA rose nearly 2% to $1.9 billion. The company guided for 2021 performance (excluding Global Connect) for EBITDA to come in around $1.47 billion on revenues of roughly $3.5 billion. In March, Nielsen cut a deal with Roku (ROKU) to announce a strategic alliance between both platforms, as a few days later, the company closed the Global Connect deal.
Alongside the release of the first quarter results, Nielsen announced that the Global Connect deal yielded just $2.4 billion in net proceeds. Net debt post the deal stood at $5.6 billion, as the company hiked the EBITDA guidance to $1.48 billion, with adjusted earnings seen just north of $1.50 per share, below my pro forma numbers seen at the time of the Global Connect divestment. The company hiked the guidance in a minor way alongside the second and third quarter earnings guidance.
Shares fell back to the $16-$17 mark in February/March, as the company posted full year sales of $3.5 billion, EBITDA of $1.49 billion and adjusted earnings per share at $1.81 per share. Net debt has been cut to $5.2 billion, equal to 3.5 times EBITDA. The company guided for solid guidance in 2022 with revenues up around 4%, and adjusted earnings seen at a midpoint of $1.86 per share. Hence, valuations were non-demanding at just 10 times, as real execution still seems to be lagging.
Towards the end of the month, the board announced that it has received an unsolicited offer from a private equity consortium which valued equity of the company at $25.40 per share, a big 50% premium from the prevailing share price, but actually below the share price roughly a year ago. The board has determined to not proceed with the offer and instead buy back a billion worth of shares, as management furthermore cut a deal with WindAcre, one of its larger shareholders to form a pact against the suitors. While the company did not announce the members of the consortium, it was widely reported that Elliott and Brookfield are the parties behind the offer.
Upon the news of the unsolicited offer, shares rallied to the $24 mark, but now have fallen back to $22 and change. This move has been seen as management rebuffed the offer and WindAcre announced that it saw intrinsic value in the $40s. This seems a bit stretched, although I would not rule out that the consortium would raise its offer by a few bucks, as such a move might trigger other investors to be lured into offering shares to the consortium as well.
Hence, I find myself performing a balancing act. Shares trade at 12-13 times adjusted earnings, even after the interest from private equity, as these earnings metrics look quite alright. Of course, the balance sheet is still quite leveraged as this distraction is not helping the business and investors either.
On the other hand, Nielsen is a long term dog, as this warrants a discount, albeit that the company has seen resilient but not inspiring growth in 2021 and sees solid growth today, as it feels quite cheap. While the risk-reward seems interesting enough to enter an opportunistic position here, Nielsen is a long term dog which prevents me to get involved (in size) here.