DRAFT

All3Media Investment Opportunity

Draft – May 9, 2011

Background

All3Media is a global production and distribution company comprised of 20 companies across UK, US, Netherlands, Germany, Australia and New Zealand, generating projected revenue of $724MM and EBITDA of $103MM in FY11 ending August 31, 2011 (~28% Gross Profit margin and ~14% EBITDA margin). Approximately 50% of the revenue is generated in the UK and 50% outside of the UK.

These 20 companies comprise of the following:

  • 16 Production companies

- 6 drama and reality drama: Bentley Productions (UK), Company Pictures (UK, US), Lime Pictures (UK), South Pacific Pictures (NZ), MME Moviement/Filmpool (Germany), Tower Productions (Germany).

This segment represents 49% of revenue, and top formats include Midsomer Murders, Hollyoaks, Skins, Shameless, Wild at Heart, and the Only Way is Essex.

-10 entertainment and factual entertainment: Studio Lambert (UK, US), Maverick Television (UK), Lion TV (UK, US), North One TV (UK, Aus), IdtV (NL), Optomen (UK, US), One Potato Two Potato (UK, US), Objective Productions (UK), Zoo Productions (US) and Cactus TV (UK).

This segment represents 51% of revenue, and top formats include Undercover Boss, Cash Cab, Kitchen Nightmares, the Cube, Are you Smarter than a 5th Grader, How to Look Good Naked.

  • International distribution companies All3Media International and Optomen International, with a program catalogue of over 6,000 hours and format catalogue of over 50 formats sold in the last two years.
  • Digital and multiplatform content company Illumina Digital (UK)
  • Brand agency Kameleon (UK)
  • Talent management company Artist Rights Group (UK)

All3Media’s management team is led by Steve Morrison (CEO), Jules Burns (COO), David Liddiment (Creative Director) and Wayne Garvie (International Production).

Strategic Rationale

Acquisition would provide SPT international productions instant scale, drive rapid growth and become immediately accretive

Significant UK Presence and Instant Scale to Become A Top 3 Global Player

  • UK remains the critical top priority territory for a successful, dominant global production business, a key strategic gap for SPT
  • UK (along with US) is the global leader in non-scripted format origination and exploitation
  • UK scripted programs have high international sales value in both prints and format
  • All3Media is one of the few remaining transformational deals available, driving urgency and importance of this opportunity
  • Market consolidation has intensified with Warner-Shed and News-Shine tie-ups, with NBCU and CBS rumored to follow
  • Other major production competitors such as Zodiak, Banijay and financial buyers continue aggressive acquisition strategy
  • If asset is purchased by a major competitor, this could threaten future competitive profile as well as jeopardize growth potential of existing business
  • Alternative avenue to build scale through a series of smaller deals present execution challenges including speed to market, riskier financial profiles due to size and stage of development, less developed operational systems and structures, and more buyer competition due to lower cash requirement and scarcity of quality available targets.

Robust Format Origination

  • UK, US and Netherlands are the most important territories for hit format origination.
  • All3media’s 10 top non-scripted companies operating across these territories provide a steady flow of formats for international exploitation.
  • This pipeline would also benefit from SPT’s stronger global distribution network and ancillary exploitation capabilities currently supporting leading format Who Wants to be a Millionaire.
  • Additional sustainable competitive advantage from stronger ability to attract talent attributable to scale and market power
  • Broad portfolio and large slate of new formats diversify risk and increase chance for generating hit formats

Global Production Network

  • Geographically complementary with minimal overlap
  • All3Media strengthens SPT presence in UK and Germany and expands footprint to Australia and New Zealand. Also broadens portfolio in US and Netherlands.
  • SPT provides a global network of local production companies beyond All3Media’s limited territories for exploitation of its vast catalogue of formats and programs.

Format/Program Distribution

  • A significantly larger combined format and program portfolio to leverage and exploit globally; scale would also enable faster and easier global rollout
  • A stronger combined distribution team with potential for cost synergies.

Other SPT Synergies

  • Global networks reach, including GSN
  • Access to top writers to grow scripted business
  • Global power in distribution with top movies and scripted TV shows

Financial

  • All3media would contribute over $700MM in revenue and over $100MM in EBITDA annually before synergies and is highly cash generative
  • Accelerated growth from strategic synergies
  • Potential substantial cost synergies including distribution infrastructure and corporate/back office support
  • Improves SPE’s earnings profile – more stable cash flow with long running programs and formats and less cash intensive

In summary, this transaction would achieve the aim of creating and further building one of the most compelling TV production catalogues (both scripted and non-scripted) and transform the existing international production platform from a reasonably strong player to a top 3 global industry leader.

Preliminary Transaction Analysis

Valuation

Preliminary analysis suggests a valuation range of $1.0BN to $1.2BN, or implied ~10x to 12x FY11 projected FY11 EBITDA of ~$103MM (excluding value of potential synergies)

  • Transaction multiples of 8x to 12x (e.g., Shine-News 12.6x, Shed-Warner 7.7x, All3Media-Permira 10.9x, Metronome-Shine 7.4x)
  • Trading Multiples for content companies of 6x to 12x (e.g., CKX 5.6x, Constantin 9.3x, DreamWorks 8.8x, Lions Gate 13.8x; narrow peer group)
  • Trading Multiples for broadcasting of 7x to 8x (developed markets)
  • DCF: 10x to 12x (WACC 8%-10%, TV of 7x to 8x and implied 2-3% perpetuity rate); based on management projections and subject to change with further due diligence
  • LBO: 9x to 10x (Return required for 20% to 25% IRR or 2.1-2.4 money multiple; 9x EV/EBITDA multiple, 5x leverage, 4-year investment horizon)

Note the market multiple ranges are currently applied to consolidated EBITDA, given current lack of visibility on financial profile and performance individual companies. As we gain visibility to more info in a more advanced stage of the auction process, there would be an opportunity to do a breakup valuation and evaluate quality of individual assets, which could potentially support a lower price range. A more detailed analysis of potential impact of loss of independent status will also be factored into further evaluation.

Potential Deal Structures

A standalone 100% takeover should allow maximization of synergies, both top-line growth and cost efficiencies, by providing SPT ability to control and integrate fully into existing operations.

However, due to potential unforeseeable potential restrictions in the future, we have contemplated alternative partnership scenarios as well.

  • Management equity roll-over: lowers cash requirement with tradeoff of less flexibility in operational integration and control to realize synergies
  • Debt roll-over: lowers cash requirement but expensive capital and lowers investment returns
  • JV: lowers cash requirement with tradeoff of more complex transactional structure and higher risk in deal completion as well as less flexibility in operational integration and control to realize synergies

Cash Requirement Illustration: Based on above range of $1BN to $1.2BN valuation:

  • Standalone / No Leverage: assuming rolling 50% management equity, SPT cash requirement of $930MM to $1.1BN.
  • JV with 50.1% SPE: At 3x leverage cash requirement of $380MM - $500MM; At 4x leverage cash requirement of $340MM to $460MM. If deferred earnout liability and ~50% management rollover assumed, this requirement could be reduced at 4x leverage to $240MM to $360MM.

Potential Partners

Financial Partners

  • Could mitigate funding needs but adds complexities including governance, integration restrictions, exit mechanism requirements and lack of speed and clarity in an auction process
  • Candidates likely to emerge unsolicited as options in Stage 2 of the auction process

Strategic Partners

  • Could enhance future value through synergies though imposes restrictions on flexibility in SPT integration and control over operations – e.g., Talpa, CBS
  • Potential opportunity to spin off less strategic assets pre or post closing – e.g., Discovery, Warner Bros.

Potential Integration Strategy

A 3-5 year full integration strategy: (specifics and potential adjustments dependent on earnout and other deal structure)

  • Phase I – Year 1 Post Closing
  • Management / Overhead
  • Appoint Steve Morrisson non-executive Chairman
  • Appoint Wayne Garvie COO
  • Integrate other corporate support and back office with SPT to realize increase effectiveness and cost efficiencies
  • Consolidate distribution teams
  • Integrate Netherlands operations
  • No change to US, UK and German operational processes but coordinate market activities
  • Integrate production companies into GCC
  • Phase II – Years 2+ (dependent on deal structure)
  • Integrate German operations
  • Further coordination of US and UK operations, potentially segment into scripted and non-scripted divisions
  • Full integration of systems and processes

Auction Process

UBS is conducting the auction process for All3media. We understand the IM has been distributed to appr. 15 interested parties including 3-4 PEs. Below is our current view of potential competing bidders:

Likely bidders

Time Warner

ITV

Banijay (rumoured to partner with 3i)

Potential but less likely bidders

NBCU - Comcast

Zodiak

Discovery

Private Equity (estimated 3-4 including 3i)

Unlikely bidders who received IM

News Corp

CBS

Fremantlemedia

Hearst

Lagardere

Process

  • Stage 1: Non-Binding Indicative Offer completion targeted for Friday May 13, 2011 (official response due Monday May 16, 2011 at 3pm UK time). Key content of Indicative Offer, with normal outs for due diligence, Board approvals etc, will include:
  • Strategic rationale
  • Total cash consideration and key valuation assumptions
  • Potential deal and financing structure
  • Due diligence list
  • Internal approval required for completion
  • External approval required for completion
  • Acquiring entity and relevant transaction structure
  • Acquiring alone or with partner
  • Stage 2 (4-6 weeks): A smaller group of selected parties invited to conduct further due diligence including management meetings, financial and tax reports prepared by PwC, data room access, draft SPA and more detailed discussions on transaction structure with sellers
  • Stage 3 (4-6 weeks): Exclusivity period with final party to conclude transaction.

Note UBS / sellers indicated they have not finalized specific parameters/timing of process beyond Stage 1 as they will do so after receiving the Indicative Offers for Stage 1.

We understand from UBS guidance that key selection criteria would be a combination of valuation, certainty of completion (impacted by deal structure, partners, complexity of transaction), management role/incentives post-closing and strategic fit/synergies.

Non-Binding Indicative Offer Recommendation

  • Includes normal outs for due diligence, Board approval, etc.
  • Proposed enterprise valuation of 11x FY11E EBITDA or $1.1BN
  • Sony standalone bid
  • All cash
  • No earnout

1