Tuesday, July 15, 2008

BBC confirms paid GBP £89.9m for 75% of Lonely Planet at a trailing P/E that looks to be higher than Expedia

At the time of the announcement of the acquisition by BBC Worldwide of 75% Lonely Planet there was no mention of the price paid by the BBC. This week the BBC Worldwide have published their 2007/2008 annual review containing the some more information.

The BBC acquired 75% of Lonely Planet for GBP £89.9m valuing Lonely Planet at GBP £119.9m. The sale included a put option for two years (expire 31 Oct 2009) for the remaining 25% to BBC.

Travolution is also reporting (more) plans for a website relaunch and reports that Lonely Planet's sales to March 2008 were £23.1 million for a trading profit of £4.3 million. Ultimately there were losses of £2.1 million due to site development costs and the web business losing £3.2 million from sales of £2.3 million.

That puts the multiple for Lonely Planet's valuation at somewhere around 5.2x trailing revenue. To put this in perspective Expedia is trading at 1.85 times trailing revenue (according to Yahoo! finance). To be fair, this not a very good comparison as I am sure the margins on publishing (Lonely Planet) are significantly higher that than the margins on a business still heavily dependent on air (Expedia). However if we assume that Lonely Planet's profit is a good proxy for earnings then their trailing P/E is 27.9x compared to Expedia's 17.83 (according to Yahoo! finance). That seems odd to me (unless I am getting my numbers wrong).

Here is the full Lonely Planet section of the review
"On 1 October 2007, BBC Worldwide acquired a 75% shareholding in the Lonely Planet group of companies for a total cash consideration (including acquisition costs) of £89.9m. Goodwill of £73.2m was recognised and is being written off over its estimated useful economic life of 20 years.

Under the terms of the purchase agreement the other Lonely Planet shareholders may exercise an option to sell all or part of their 25% stake to BBC Worldwide at any time up to 31 October 2009. As the minority shareholders are deemed to have retained the risks and rewards of ownership for their 25% shareholding, the put option liability has been recognised in reserves rather than as an increase in the cost of investment."
My analysis back in October last year of the sale announcement is here.

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