The London Stock Exchange AIM IPO was backed by a London-based
Private Equity Group, several large, U.K.-based London AIM Institutional Investors and a
couple London-based Private Client Brokers, with 60% of the aggregate proceeds
raised from tax-advantaged Venture Capital Trust (VCT) and Enterprise Investment
Scheme (EIS) investors.
On a pro forma basis, the Company generated
$11.4 million of revenue and $5.5 million of adjusted EBITDA during its most
recent financial year, yielding trailing acquisition multiples of 4.8 and 9.9,
respectively, upon listing on London's AIM.
CEO
Mike Principe is quoted as saying,
"We chose the London Stock Exchange's AIM because it has a great track record for growth companies and
has the credibility and respect of the investment community. London's AIM
provides us with a foothold from which to grow our global client base and
leverage our existing capabilities in the increasingly international sport of
baseball. A presence in Europe will allow us to take advantage of
emerging opportunities."
Overview of Listing on London's AIM
TLA
Worldwide, with its main operations in California and New York, raised $19
million from U.K. investors in its recent IPO on the London Stock Exchange’s
Alternative Investment Market (AIM) and secured a $10 million debt facility
from a U.S. bank.
Simultaneous
with TLA Worldwide's London AIM IPO, the Company completed two acquisitions, valued at $55
million, where the eight Members of the acquired LLCs received the entire $26
million of net proceeds from the London Stock Exchange AIM IPO plus the equivalent of $15 million
in deferred shares, for an eventual 43% stake in the London AIM-listed Company,
and the potential for earn-out / retention bonus payments of up to $14 million over
five years.
TLA
Worldwide’s two Founders identified an opportunity to consolidate and
professionalize the business of baseball athlete representation and create a
full-service offering with the addition of sports marketing and management. The Company was formed specifically to effect
the acquisition and combination of LS Legacy Sports Group, LLC (athlete
representation) and The Agency Sports Management, LLC (sports marketing and
management). The Founders retained a 4%
stake in the London AIM-listed Company.
Major
League Baseball (MLB) generated $7 billion of gross revenues during 2010,
growing at a CAGR of 9% over the decade; however, player earnings only grew at a
CAGR of 6%, shrinking from 54% of gross revenues to 41%. MLB is broadcast in more than 200 countries with
28% of the players, and 47% of minor leaguers, born outside the U.S. MLB’s strategy is to further promote baseball
internationally.
Legacy’s agents are experts in contract law,
negotiation, finance, statistics and marketing.
The athlete representation industry is highly fragmented with 60 - 70
groups throughout the U.S.; with no one group having a market share of athletes
greater than 10%. Agent fees are
typically 4% - 5% of the value of a player’s contract and 10% - 20% of commercial
revenues generated from the player’s public profile.
Agency is a marketing and management company
specializing in the representation of high-profile personalities and corporate
brands, such as; established and rising stars in sports, media, entertainment and
celebrity chefs. Agency’s services
include talent representation, lifestyle and entertainment marketing, the
creation of media, licensing and publishing opportunities and corporate consulting.
The combination of Legacy and Agency is mainly
designed to provide additional services to Legacy’s existing athlete clients and
enhance the attractiveness of Legacy when attempting to recruit new athlete clients. Agency will enable Legacy to offer its
clients additional commercial opportunities since Agency’s corporate network allows
it to identify, negotiate and monetize off-field endorsement
opportunities. In addition, Agency can help
secure post-playing-career broadcasting and marketing opportunities for Legacy’s
clients, allowing for the extension of their clients’ fee-paying-years. The Company also intends to develop, manage
and/or own baseball-themed events and consider complementary acquisitions.
On a
pro forma basis, Legacy and Agency would have had revenue, adjusted operating
income, adjusted net income and adjusted EBITDA of $11.4m, $5.4m, $4.9m and
$5.5m, respectively, during 2010.
Key London AIM Listing Metrics
- $18.8m gross was raised in the London Stock Exchange AIM IPO, $15.6m net of offering costs
- $10.0m gross was raised via the debt facility,$9.7m net of arrangement costs
- Offering costs on London's AIM amounted to 17.0% of the gross capital raised
- Undertaken on a ‘best efforts’ basis, as opposed to being underwritten
- Nominated Broker commission of 5.0%
- Corporate finance fee of £150k ($235k)
- Nominated Broker took 84% of their aggregate commission and fee in shares
- Debt facility at USD LIBOR plus 4%, repayable ratably, on a quarterly basis, over five years
- The aggregate acquisition consideration consisted of:
- $26.1m of cash
- $14.9m equivalent in deferred shares listed on the London Stock Exchange's AIM
- Three-to-five-year earn-out potential of up to $12.3m
- Retention bonus potential of up to $1.2m, payable after five years
- Valuation of:
- $41.0m, assuming only cash paid and London AIM-listed deferred shares to be issued to effect acquisitions
- $54.5m, if maximum earn-out and retention bonus is included
- Trailing revenue multiple on London's AIM of 3.6 or 4.8
- Trailing P/E ratio on London's AIM of 8.4 or 11.1
- Trailing EBITDA multiple on London's AIM of 7.5 or 9.9
- Opening market capitalization on London's AIM of $34.9m, fully diluted to include issuance of deferred shares
- Free float on the London Stock Exchange's AIM of 36%
Key Financial Metrics
(in
USD millions)
|
Y/E 12/31/08
|
Y/E 12/31/09
|
Y/E 12/31/10
|
Δ ’08 - ‘09
|
Δ ’09 - ‘10
|
Revenue
|
$9.8
|
$9.4
|
$11.4
|
-4%
|
+21%
|
Cost
of Goods Sold
|
2.8
|
2.8
|
3.6
|
0%
|
+29%
|
Adjusted
Admin. Expenses[1]
|
4.2
|
3.4
|
2.4
|
-19%
|
-29%
|
Adjusted
Operating Income
|
2.8
|
3.2
|
5.4
|
+14%
|
+69%
|
Interest
and Other Expenses
|
0.7
|
0.5
|
0.5
|
-29%
|
0%
|
Adjusted
Net Income[2]
|
2.1
|
2.7
|
4.9
|
+29%
|
+81%
|
Adjusted
EBITDA1
|
3.1
|
3.6
|
5.5
|
+16%
|
+53%
|
Total
Assets
|
5.0
|
5.4
|
5.2
|
+8%
|
-4%
|
Since
the London Stock Exchange AIM IPO was not completed within nine months of the latest audited financial
statements, the Company was required to provide unaudited, comparative,
six-month stub period financials. The
Company’s revenue, adjusted operating income, adjusted net income and adjusted
EBITDA for the six-months ended June 30, 2011 was $6.7m, $3.3m, $3.1m and
$3.3m, respectively.
London AIM Shareholder Base
The
Company was founded with 4.1m shares with the sole purpose of acquiring Legacy
and Agency, which were LLCs, where their eight Members will receive an
aggregate of 47.4m shares on the second anniversary of the London AIM IPO. This deferred consideration has been included
retrospectively in the table below so as to illustrate the eventual ownership
stakes and related dilutive effect of the 59.8m shares issued for cash in the
London AIM IPO, leaving the Company with 111.3m London Stock Exchange AIM-listed shares outstanding.
Shareholder
|
Pre-IPO
%
|
Post-IPO
%
|
Members
of Legacy and Agency
|
92.07
|
|
Founders
of the Company
|
7.93
|
3.673
|
London
Private Equity Group
|
-
|
13.93[5]
|
U.K.
Investment Company
|
-
|
10.22
|
London
Investment Manager
|
-
|
8.99
|
Edinburgh
Institutional Investor (Fund Manager)
|
-
|
5.44
|
London
Institutional Investor (Fund Manager)
|
-
|
4.27
|
Broker
to the Company
|
-
|
2.82
|
London
Private Client Broker
|
-
|
2.02
|
London
Private Client Broker
|
-
|
2.00
|
London
Institutional Investor (Fund Manager)
|
-
|
1.80
|
Other
New U.K. Investors
|
-
|
2.24
|
Totals
|
100.00
|
100.00
|
An
important element of TLA Worldwide’s London AIM IPO was its ability to raise $11.3m of the
$18.8m from tax-advantaged Venture Capital Trust (VCT) and Enterprise
Investment Scheme (EIS) investors. Since
one of the Company’s two Founders and the Company Secretary, who became the third
shareholder prior to the London Stock Exchange AIM IPO, are based in the U.K., the key test of having a ‘permanent
presence’ in the U.K. with the ability to enter into binding contracts was met.
As is customary, the Company obtained a
provisional ruling from the U.K. taxing authority regarding its likely
eligibility for VCT and EIS investors.
Beyond
the obvious benefit of creating $26 million of immediate liquidity for the eight
Members of the LLCs, the Company now has a diversified London AIM-listed shareholder base from
which to create additional post-IPO liquidity on London's AIM and new U.K.-based London AIM investors who
may choose to participate in any future financings on the London Stock Exchange's AIM. The increased profile from being listed on London's AIM should
enhance the Company’s ability to retain existing clients, attract new clients and,
if desired, complete acquisitions, possibly with London AIM-listed shares, of other player
representation, event management and marketing organizations. Finally, the Company put in place a limited
management incentive plan, similar to a share option plan, which could be
expanded to include employees and Board members and used as an incentive to
attract new employees and Board members.
London AIM Board
of Directors and Corporate Governance
The Board consists of two Executive Directors and three Non-Executive Directors (two of whom are Independent); all with solid resumes and a good blend of complementary experiences and skill sets. The Company established an Audit Committee and a Remuneration Committee, each consisting of only the three NEDs. The Board is staggered such that no more than 1/3 must retire and offer themselves for re-election each year. The Board intends to meet 12 times per year and whenever deemed necessary.
The Board consists of two Executive Directors and three Non-Executive Directors (two of whom are Independent); all with solid resumes and a good blend of complementary experiences and skill sets. The Company established an Audit Committee and a Remuneration Committee, each consisting of only the three NEDs. The Board is staggered such that no more than 1/3 must retire and offer themselves for re-election each year. The Board intends to meet 12 times per year and whenever deemed necessary.
Companies listed on London's AIM are not required to comply with the U.K. Corporate Governance
Code (the Combined Code), which is mandatory for companies listed on the Main
Market; however, the Company intends to adopt certain features of the Combined
Code as deemed appropriate given the Company’s size and stage of
development. The Company will comply
with the Corporate Governance Guidelines for Smaller Quoted Companies published
by the Quoted Companies Alliance.
London AIM Legal Considerations
Even
though the Company is incorporated in the U.K., one of the three most important
elements of English corporate law, relating to takeovers and mergers, does not automatically apply since the Company’s
‘place of central management and control’ is outside of the U.K. or one of its
Crown Dependencies, the Channel Islands and Isle of Man. As is customary, the Company amended its constitutional
documents to incorporate the main provisions of the U.K.’s City Code on
Takeovers and Mergers. The three main
differences between U.K. and U.S. corporate law are:
- Pre-emption rights (i.e. anti-dilution) – Shareholders must be offered the opportunity to participate in the issuance of shares listed on the London Stock Exchange's AIM for cash.[6]
- Notifiable Interests – Shareholders are required to notify the Company of, and the Company is required to publicly announce, holdings at or above the 3% level and whenever a full percentage point is breached in either direction.
- Takeovers (i.e. mandatory offer) – If any party, or parties acting in concert, accumulates a holding of 30% or more, they must make a cash offer to the other shareholders on London's AIM at the highest price they paid for the Company’s shares during the last 12 months.
The London AIM IPO
was not subject to Regulation S of the U.S. Securities Act of 1933; therefore,
the London AIM-listed shares are eligible for dematerialization and trading within CREST, the
most common electronic system for the holding and transfer of London AIM-listed shares in the
U.K. As such, it was not necessary to
appoint a Depository and create Depository Interests, as would be the case for
a company domiciled outside the U.K., Channel Islands or Isle of Man.
London AIM Accounting Considerations
Since
the Company is incorporated in the U.K., it is required to report using
IFRS. The U.K. Member Firm of an
international accountancy network acted as Reporting Accountant and audited the
2008 - 2010 financials of Legacy and Agency.
Since the 2010 financials were more than nine months old, unaudited,
comparative, six-month stub period financials were required.
An
unaudited pro forma statement of net assets is never required in connection
with an London AIM IPO but was provided to illustrate the net proceeds from the
London Stock Exchange AIM IPO, the impact of the acquisitions, the exclusion of certain minor assets/liabilities
from those acquisitions and a relatively small working capital adjustment.
Other
Given
the nature of the Company’s business, no Experts’ Reports were prepared;
however, certain information contained in the AIM Admission Document was sourced
from third parties, which the Directors believe to be accurate and not
misleading.
[1] Adjusted to take retrospective effect of the
Company’s post-IPO compensation levels since the historic entities were LLCs
with differing methods and levels of compensation for their Members.
[2] This is effectively pre-tax net income since
LLCs are pass-through entities for Federal and State income taxation purposes.
[3] Subject to a 12-month lock-in from the date of
issuance and customary orderly market provisions on the London Stock Exchange's AIM for a further 12 months.
[4] All eight Members entered into five-year
employment agreements with the Company, terminable at will by either party.
[5] This investor is entitled to appoint one
Director to the London AIM Board, provided their holding remains above 5%.
[6] It is customary for London AIM-listed companies to have
a standing authorization from their shareholders for the issuance of London AIM-listed shares for
cash of up to 10% of the then outstanding London Stock Exchange AIM-listed shares over a 12-month period. This flexibility increases the certainty and
speed of small capital raises and reduces transaction costs, since further
communications with, and approvals from, shareholders are not required.
