Bob Willott on the bottom line

BOB WILLOTT

Wealthy publishing entrepreneur Mike Danson's acquisition of the publicly listed digital media and marketing business TMN Group, into which he has injected various other business he had already acquired, may prove well timed if the target companies benefit from any recovery in the economy, but the current condition of the newly formed group is less than clear.   Indeed on a rough calculation, the enlarged group appears to be trading at little more than breakeven at present.

Shareholders in TMN approved the transaction yesterday as well as a change of name to Progressive Digital Media Group.   As a result Danson is now the owner of 84.8% of the enlarged group with a stock market value in the region of £45 million following a net cash outlay of considerably less than that over the last two years. 

Danson previously made a lot of money from the sale of his Datamonitor business to Informa for approximately £502 million in July 2007.  He founded Datamonitor and owned approximately 25% of the shares at the time of sale.   So he is rich, an experienced operator and presumably a good judge of business potential in the sector.

The lack of clarity about the financial condition of the newly enlarged group revolves around the fact that Danson had initially acquired companies through two separate investment vehicles and each acquisition was then subjected to a number of rationalising and other exceptional transactions.  In the circular sent to TMN shareholders in support of the reverse takeover, no meaningful picture has been provided of maintainable profitability of the enlarged group.   The table below shows why it is difficult to construct an estimate that is better than breakeven.  

The way in which the Progressive group was created prior to the TMN bid makes interesting reading too.

For example, last November SPG Media Group was bought for about £11 million in cash by Progressive Capital, a £100 company actually owned at the time by another member of the Danson family - Peter - presumably as bare trustee for Mike Danson.  The deal was funded by loans from Mike Danson.  Then Progressive Media Group (Holdings) acquired Progressive Capital in return for 100 shares issued to Mike Danson, seemingly inconsistent with the fact that Peter was still shown as the sole shareholder in the company's annual return as recently as April this year.  Doubtless this inconsistency will have been sorted out prior to finalising the TMN deal.

Earlier acquisitions were made by another Danson owned company Progressive Media Group - again funded by Danson loans. 

Some property assets were subsequently stripped out of acquired companies into yet another Danson company Estel Property Investments that is not within the newly restructured group although it is contracted to provide services to the group.

At Progressive Media Group a batch of publishing assets was bought for £1.4 million from a subsidiary called Progressive Media Markets after which that subsidiary was sold for £10.8 million to an unnamed purchaser.  Curiously Mike Danson became a director of Progressive Media Markets on the very day that it was sold by the group (succeeding his relative Peter Danson on that board) and the sale proceeds were used to repay the loan that Mike Danson had previously made to the Progressive Media Group.  In other words, it seems quite likely that Mike Danson was in effect paying £10.8 million to one of his companies in return for some publishing assets so as to enable that company to repay a loan of a similar amount that he had made to it previously. 

As the Danson family appears to have been the dominant shareholder in all companies involved in these transactions and the resultant parent company is listed on AIM, prospective outside investors might be disappointed not only by the lack of clarity about underlying profitability but also by the fact that Danson owns some companies personally that will have continuing relationships with the enlarged group.

© Fintellect Ltd