Thursday, December 8, 2011

London's AIM - TLA Worldwide Raises $19 Million in a London AIM IPO from U.K. Investors and Secures a $10 Million Debt Facility from a U.S. Bank - Cash Used to Effect Two Acquisitions - Founders Receive Net Proceeds of $26 Million

Simultaneous with the London Stock Exchange 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 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.

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

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

Cost of Goods Sold
Adjusted Admin. Expenses[1]
Adjusted Operating Income
Interest and Other Expenses
Adjusted Net Income[2]
Adjusted EBITDA1
Total Assets

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.

   Pre-IPO %
   Post-IPO %

Members of Legacy and Agency
Founders of the Company
London Private Equity Group
U.K. Investment Company
London Investment Manager
Edinburgh Institutional Investor (Fund Manager)
London Institutional Investor (Fund Manager)
Broker to the Company
London Private Client Broker
London Private Client Broker
London Institutional Investor (Fund Manager)
Other New U.K. Investors

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.
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:
  1. 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]
  2. 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.
  3. 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.

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.