Oaktree and Quadrant weigh sale of MediaWorks

Quadrant Private Equity secured a 40 per cent interest in MediaWorks through its QMS acquisition. Picture: iStock

Mergers and acquisitions fever appears to have hit the Australia and New Zealand media industry, with MediaWorks and Sky Network Television the latest to be at the centre of deals.

Private equity funds Oaktree Capital Management and Sydney-based Quadrant Private Equity are understood to have launched a strategic review of their MediaWorks business as auditors sound the alarm over its future.

It is understood that the main option being floated is a separation of its stake in the out-of-home advertising business QMS from the radio operation.

QMS is then likely sold.

DataRoom understands that one of the parties that may have interest in buying the out-of-home advertising division is Australia and New Zealand-listed media company NZME.

Working on the strategic review is understood to be investment bank Goldman Sachs.

MediaWorks, run by Wendy Palmer, is a New Zealand media business that operates 12 radio brands across New Zealand, including The Breeze, The Edge and The Rock.

It also has 5500 outdoor touchpoints and is being hard hit by a weaker advertising market amid soft economic conditions.

Australia and New Zealand-listed NZME, which owns print assets, including the largest broadsheet newspaper and news website The New Zealand Herald, and a stable of radio stations including the number one talkback station NewstalkZB, said on Tuesday that its advertising revenue was down 7 per cent year-on-year.

Adding outdoor advertising to its stable could offer it exposure to a more resilient media sector.

Sources believe another possibility could be that the outdoor advertising operations are merged with New Zealand digital billboard company Lumo.

Quadrant inherited its 40 per cent interest in MediaWorks through the acquisition of QMS in 2018 for $571.6m after QMS earlier embarked on a MediaWorks deal.

Oaktree and Quadrant sold the loss-making MediaWorks television broadcasting division to US-based Discovery for $NZ20m in 2020, leaving the profitable radio unit remaining.

Material uncertainty

The MediaWorks auditors had said in its 2022 annual report there was “material uncertainty” about its ability to continue as a going concern with the group’s future in the hands of its lenders.

The broadcaster and advertiser reported a $NZ125.9m loss for the year after sliding $NZ4.9m into the red in 2021 as wage and technology costs increased by up to about $NZ20m and with a $NZ110m impairment.

Radio generated $NZ156.8m of revenue and outdoor advertising $NZ47m.

Lenders, including Westpac, are owed $NZ91.6m, and they have waived its covenants.

Net assets are $NZ264.7m.

The company in 2021 was earmarked for a float through investment bank UBS and Jarden.

At that time, market analysts believed that the broadcaster could be worth about $300m.

It comes after numerous attempts to sell MediaWorks over the years by Oaktree, which was never satisfied with offers.

Last year, MediaWorks was in talks about a sale to Sky Network Television, but the deal collapsed after Sky’s shares crashed 7 per cent on the day of news of the offer.

At that time, MediaWorks was understood to generate about $NZ40m of annual earnings before interest, tax, depreciation and amortisation, which assumed a deal would likely value the business at up to $NZ400m.

In March, MediaWorks controversially shut down its struggling talkback radio start-up Today FM.

The former chief executive of Southern Cross Media Group, Grant Blackley, was believed to be keen to buy the MediaWorks radio assets, but now the Australian regional television and radio broadcaster is subject to a buyout proposal itself from rival ARN Media and Anchorage Capital Partners, in what could be the start of a new wave of consolidation of media assets facing structural headwinds from technology giants like Google and Facebook and streaming service providers.

QMS, which has an advertising presence in Australia and New Zealand, has won contracts such as the 10-year City of Sydney contract from industry heavyweight JCDecaux, which some suspect may soon be eager to stage an exit from the Australian market.

Sky Network Television

Meanwhile, the $411m New Zealand pay television provider Sky Network Television, which told the market on October 13 it had received a buyout proposal, also informed the market on Wednesday that talks with the suitor had ended.

Shares closed almost 7 per cent lower on Wednesday to $NZ2.68.

DataRoom understands that the offer valued the company at about $NZ3.70 per share.

The buyer is an obscure private equity firm from the east coast of the United States that invests in media assets.

Sky Network’s key shareholders were sounded out about the deal, and some in the market were perplexed about the company’s decision to reject the offer, which was a 50 per cent premium to the trading price before the offer was known and equated to about 3 times EBITDA.

Seven West Media trades at about 3.5 times.

Sky Networks is advised by Jarden.

Turnaround fund Anchorage Capital Partners has looked at both MediaWorks and Sky in the past and it could make sense to add the companies to the portfolio of media assets it may acquire through the attempted Southern Cross Media acquisition.