International: WPP has entered into an agreement to sell 60% of Kantar, its global data, research, consulting and analytics business, to Bain Capital. The Proposed Transaction creates a strong partnership for the development and growth of Kantar and values the whole of Kantar at a headline enterprise value of c.$4.0bn (c.£3.2bn).
Transaction highlights
- Bain Capital Private Equity’s acquisition of 60% of Kantar creates a strong partnership with WPP to accelerate the development of Kantar
- Further simplifies and repositions WPP for growth, whilst unlockingsignificant value for shareholders
- Kantar valued at c.$4.0bn (c.£3.2bn1) in the proposed transaction, equivalent to a multiple of 8.2x 2018 Kantar headline EBITDA2
- Proceeds to WPP on completion after tax and continuing investment in Kantar expected to be c.$3.1bn (c.£2.5bn)
- Potential value upside for WPP shareholders from 40% equity stake in Kantar
- WPP to retain c.60% of net proceeds to reduce debt to the low end of the target leverage range of 1.5 – 1.75x average net debt/EBITDA3for 2020
- Balance of proceeds, c.$1.2bn (c.£1.0bn), to be returned to shareholders
- Impact of proposed transaction and use of proceeds expected to be marginally dilutive to headline EPS in 2021
- Completion and associated proceeds relating to no less than 86% of Kantar expected in early 2020, subject to approval by WPP shareholders and other customary regulatory and legal approvals
Mark Read, Chief Executive Officer, WPP, said: “Kantar is a great business and we look forward to working with Bain Capital to unlock its full potential. As a strategic partner and shareholder in Kantar, WPP will continue to benefit from its future growth while our clients continue to benefit from its services and capabilities. I would like to thank Eric Salama, his team and everyone at Kantar for their tremendous contribution to WPP – a contribution that will continue as we develop the business together.
“This transaction creates value for WPP shareholders and further simplifies our company. With a much stronger balance sheet and a return of approximately 8% of our current market value to shareholders planned, we are making good progress with our transformation.”
Christophe Jacobs van Merlen, a Managing Director at Bain Capital Private Equity, said:“We believe that we are well-positioned to support Kantar, alongside WPP, in driving forward the business in a rapidly changing industry. Our deep sector knowledge, operational expertise and strong track record of partnering with management teams to accelerate growth gives us confidence that we can help Kantar grow both organically and by acquisition.”
Eric Salama
Eric Salama, CEO, Kantar, said:“Our new ownership structure presents a great opportunity for Kantar, our employees and our clients. In Bain Capital we have a partner who shares our ambition, brings relevant expertise and – with WPP – can help us accelerate our growth and impact for clients. We are focused on delivering ‘human understanding at scale and speed’ and the ‘best of Kantar’ more consistently. We will do so by investing more in talent and by becoming a more technology-driven solutions provider.”
Background to and reasons for the Proposed Transaction
On 25 October 2018, WPP highlighted the significant opportunity to develop Kantar into the world’s leading data, insights and consulting company. The Board considered that the best way to unlock Kantar’s potential and maximise shareholder value was with a strategic or financial partner. It was envisaged that WPP would remain a share owner with strategic links to ensure that the benefits to clients were realised.
Kantar has attracted significant levels of interest from potential financial partners, leading to the agreement today with Bain Capital. The WPP Board believes that the Proposed Transaction will allow Kantar to strengthen its industry-leading position through the combined expertise and resources of Bain Capital and WPP. It also crystallises significant value for WPP’s shareholders, while giving them continued exposure to an attractive business with the potential for further value realisation in the future.
Principal terms of the Proposed Transaction
The transaction values 100% of Kantar at c.$4.0bn (c.£3.2bn), equivalent to a calendar 2018 EV/EBITDA multiple of 8.2x based on Kantar’s headline EBITDA (excluding WPP overhead) of £386m. The equity value after expected completion adjustments is c.$3.7bn (c.£3.0bn). After transaction costs, tax and WPP’s continuing investment of c.$0.4bn to own 40% of the equity in Kantar, net cash proceeds to WPP are expected to be c.$3.1bn (c.£2.5bn). The consideration is payable in cash.
Kantar Reorganisation:
At the present time, the WPP companies constituting the Kantar business sit within the wider WPP group. The Kantar Group will therefore be carved out of the wider WPP group by way of a reorganisation and placed into a holding structure ahead of completion. It is expected that completion will take place in a number of stages. The consideration is subject to adjustment on each completion to take into account any movements in net debt between the Kantar Group and the WPP Group arising as a result of the Kantar Reorganisation.
Completion (and associated proceeds) relating to a large majority of Kantar’s operations is expected in early 2020 and is conditional on the satisfaction (or waiver, where applicable) of the following conditions:
- The approval of WPP’s shareholders (the Proposed Transaction is a Class 1 transaction for WPP under the Listing Rules);
- obtaining antitrust approvals for the Proposed Transaction from regulators in the European Union, the United States, Brazil, China, Russia, Turkey, South Korea, South Africa and Mexico; and
- completion of such proportion of the Kantar Reorganisation such that prior to First Completion, WPP is in a position to complete on the sale of Kantar entities representing not less than 90% of the total FY18 EBITDA of the Kantar business. WPP may waive this threshold down to 86% of the total FY18 EBITDA of the Kantar business.
The Proposed Transaction will not proceed if the conditions above are not satisfied (or waived, where applicable) on or before the date which is seven months from the date of this announcement, with WPP having the right to extend this period to nine months if certain conditions have not yet been satisfied. Completion for the remainder of Kantar’s operations is expected to occur within 12 monthsof the date of this announcement.
A shareholders’ agreement will be put in place, effective from First Completion, in order to govern the relationship between WPP and Bain Capital, and will ensure consistent governance rights for the parties. Eric Salama will remain as CEO of Kantar and Robert Bowtell as CFO. The boards of the Kantar joint venture companies formed by WPP and Bain Capital will have up to six Bain Capital nominated directors and up to two WPP nominated directors.
In certain circumstances, in the event of a disposal by Bain Capital of a majority of its interest in Kantar to a third party, it will have the right to require WPP also to transfer all of its securities in Kantar to that third party at the same price.
Use of proceeds
WPP intends to retain c.60% of net proceeds to reduce its leverage. On completion, leverage is expected to be at the low end of WPP’s target range of 1.5 – 1.75x average net debt/EBITDA for 2020, a year ahead of the target date. The Board believes that the strengthened balance sheet is appropriate at this stage of WPP’s transformation and given the structural changes the industry is undergoing.
The balance of net proceeds, c.$1.2bn (c.£1.0bn), will be returned to shareholders. The form of this return will be communicated to shareholders in due course. The impact of the Proposed Transaction and the use of proceeds is expected to be mid single digits % dilutive to headline earnings per share in 2020 and marginally dilutive to headline earnings per share in 2021.
WPP’s dividend policy will remain unchanged as a result of the transaction.
