Why the APN News and Media Limited share price crashed today

APN News and Media Limited (ASX: APN) saw its share price sink more than 20% today to a 52-week low of $2.67.

The reason?

Well, the company has just come out of a trading halt after an institutional placement and a 5 for 13 shares entitlement offer. The new shares were priced at $2.45 – a large discount (27.5%) to the last closing price of $3.38.

The reason for the substantial capital raisings were the acquisition of the remaining 50% of Adshel that APN didn’t already own – at the cost of $268.4 million.

Adshel was a joint venture APN established with Clear Channel Outdoor and in the last financial year generated revenues of $170 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of $42 million. That works out to be an acquisition multiple of ~6.4x. Including debt the Enterprise Value (EV) to EBITDA multiple is around 12.7x.

The company specialises in out-of-home media advertising and reaches 92% of Australia 68 times a fortnight, according to Adshel. The advertiser has some unique locations including wraparound imaging on columns in railway stations, super-large stickers in railway stations, large format billboards, 7-eleven convenience stores and petrol stations, bus shelters and even interactive advertising like this. According to APN, Adshel is number one in street furniture both in Australia and New Zealand.

The rapid growth of sales being witnessed by the likes of oOh!Media Ltd (ASX: OML), APN Outdoor Group Ltd (ASX: APO) and QMS Media Ltd (ASX: QMS) has no doubt spurred APN News and Media to increase its exposure to a rapidly growing sector of the advertising market.

The acquisition of Adshel will transform APN News yet again. Radio will represent 57% of revenues, with outdoor media the remaining 43%.

The price fall is, therefore, all related to the purchase price, more shares being issued and at a discounted price. But investors may want to add APN News and Media to their watchlists after this acquisition.

How 1 Man Turned $10,600 Into More Than $8 Million

Discover how one man turned a modest $10,600 investment into an $8,016,867 fortune. Learn more about this man and how you can start down the path toward financial independence. Simply click here to learn more. No credit card required.

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.