The news today is that Permira, a British private equity firm, is paying a 41% premium to take out Ancestry.Com (NASDAQ:ACOM) for $32/share, a great pop for the company's shareholders and its management team, which the company says is staying put.
The deal lets Spectrum Equity, another private equity firm which holds 30% of ACOM, sell some of its shares, while increasing the value it has for the investment on its books. Spectrum specializes in media properties.
If you held some ACOM (or even if you didn't) where should you point your profits?
Toward News Corp. (NASDAQ:NWS).
Permira and NWS are old friends. The two took NDS private in 2008. At the time, NWS held 72% of NDS - the deal cut that to 49%. The deal, at five times EBITDA, came at the height of the financial crisis, and those who held onto their NDS stock were pleasantly surprised by the deal going through.
What Permira did in this case was to switch strategies, from a focus on satellite to a focus on broadband, resulting in products aimed at tablet computers, which were a huge success. Permira was in the process of refinancing NDS, a European company, on American markets when Cisco (NASDAQ:CSCO) stepped in with a bid that gave Permira and NWS an internal rate of return of 26% on the deal by last June.
Look for the same kind of performance here.
This gives me the chance to reiterate a suggestion from early this month (made at another site) that you consider taking out more NWS. Its coming split between publishing and broadcasting will increase shareholder value, it's not going to be stupid enough to buy more newspapers, and it has a great financial engineer in Permira to play with in order to extract the most profit from its assets.
Rupert Murdoch is past 80, and his kids are too discredited to run the company he built from here. Look for a highly profitable cash out, in pieces, staged over the next few years, with private equity taking a substantial role.