destra Corporation is now the largest independent CD & DVD entertainment company in Australia, with the combined assets of Rajon Music, Rajon Vision, VEG and now Payless Entertainment.
destra Corporation acquires music publishing & distribution company Payless Entertainment for $8.7 million
Digital media company destra Corporation Limited (ASX:DES) announced today the $8.7 million acquisition of music and video content publisher and distributor – Payless Entertainment Limited.
destra Corporation is now the largest independent CD & DVD entertainment company in Australia, with the combined assets of Rajon Music, Rajon Vision, VEG and now Payless Entertainment.
Payless Entertainment is the leading Australian budget audio and video content publisher and distributor. Payless Entertainment is expected to generate approximately $2.5m in Earnings Before Interest and Tax (EBIT) profit in the 2005-06 financial year.
The acquisition will be immediately EPS positive for destra Corporation. destra’s digital content assets are complemented by the physical distribution of certain audio/video content offered via the Payless retail channels.
“Payless Entertainment delivers physical support for our digital music and video communities. With this transaction, destra is strengthening its position as a market leader in entertainment and digital media,” commented destra CEO, Domenic Carosa.
destra Chairman, Carl Olsen, said, “The inclusion of Payless Entertainment’s suite of content to the destra portfolio will enable the company’s audio and video divisions; Rajon Music, Rajon Vision and VEG to distribute an enhanced and diversified range of entertainment content through an additional 400 retailers.
“The integration of Payless’s assets will consolidate destra’s position in the budget entertainment market, an area of anticipated industry growth, as physical content distribution migrates over time to destra’s digital communities.”
The Payless distribution network includes the majority of Australia's department and music store chains in addition to independent store operators. Payless will license and distribute around 5 million CDs and DVDs this year.
Management & Business Changes
As with previous destra acquisitions, Payless Entertainment will continue to operate as an individual entity with its own governance structure within the broader destra Group.
The Payless Entertainment Board of Directors will undergo a restructuring; including the resignation of Payless founder, Mr. Walter Lehne and all other current directors. Management changes will include the appointment of several Rajon and destra executives to the Payless Entertainment Board.
Transaction detail
destra will acquire Payless Entertainment Ltd for a consideration of $8.7 million, comprising;
- $5,646,000 paid in cash; and
- 10,817,400 destra shares at 28 cents
The issue of the 10,817,400 destra shares is subject to destra shareholder approval, which will be sought at today’s Extraordinary General Meeting. If the issuance of shares is not approved, the consideration paid in cash would increase by $3,040,200.
The consideration paid is based on a multiple of 3.3 times current year estimated EBIT and an adjustment for working capital movements.
In addition the vendors will be paid an amount calculated as 20% of EBITDA profit in excess of $3,000,000 in the Financial Year Ending 30 June, 2007.
The transaction was completed drawing from an $11 million debt facility from St. George Bank Corporate and Business Banking.
Acquisition of Poppy Chops
In addition, destra recently completed the acquisition of mobile ring tone business, Poppy Chops. This acquisition will consolidate the MP3 Music Network as the innovative channel for independent artists to promote their music to mobile phone subscribers.
“As digital music continues to evolve, consumption of content via mobile phones remains a significant growth area. Poppy Chops deliver a global mobile distribution capability to destra Media – giving our artists the ability to create and sell ring tones to a global audience.” says CEO Domenic Carosa.
The founders of Poppy Chops will remain with the business and lead the effort to mobilise existing destra assets. The acquisition consideration comprised of 564,000 shares in destra Corporation Ltd and 470,000 unlisted options with vesting dependant on the achievement of commercial milestones.