Review: Acamar Films EIS

This is the sort of deal that rarely – if ever – gets in front of retail investors. 

It's an opportunity to invest in Acamar Films EIS – the company behind the BBC CBeebies number one preschool children’s show, Bing.

Normally investment opportunities in this sector tend to be in very early-stage and unproven projects. As soon as an idea proves successful, it often gets snapped up by a global media company and private investors never get a look in. This, in our view, is a rare exception.

Highlights

  • Invest in Bing, the number one rated preschool show on CBeebies 
  • Unusual opportunity to invest mid-stream – about to produce its fourth series
  • Already broadcast in 99 territories and potential for global brand
  • Highly experienced management team has contributed over half of the funding to date 
  • 60% share premium on EIS shares
  • Strong M&A activity in the sector
  • Target returns of at least 3.5x – not guaranteed
  • Minimum investment £20,000

The offer

This is an exciting opportunity for experienced investors to invest in an already successful concept with significant further growth potential.

Acamar Films Ltd (“Acamar” or “The Company”) is an independent film and television production company that owns the rights to and co-produces Bing, the number one rated preschool show on the BBC CBeebies and most successful programme in the channel’s digital history. 

Bing was first broadcast in 2014. It is now available in 99 territories and already has extensive licensing agreements in place, including with Fisher-Price and HarperCollins. 

Acamar has so far raised £14.3 million through a mix of debt and equity to fund its operations. 55% of this has been invested by the CEO and his family. 

The strategy was to fund as much internally or through debt as possible, and by so doing preserve ownership of the rights to Bing. As a result, the Company still owns 96% of the revenue rights and control of the IP, which is highly unusual for a small independent production company.

The Company is now looking to raise a further £10 to £12 million from a mix of debt (up to £7 million) and equity (up to £5 million). £2 million of the equity is expected to come from existing shareholders with the balance of £3 million available through Wealth Club as EIS-qualifying shares.

The capital will be used to transform the Company into a global broadcaster, produce 26 more episodes (series four) and develop a more powerful consumer products and international sales division. 

The strategy is to grow Bing’s global audience through new territories and greater digital presence. The US is a major market, and Acamar is currently in discussions with two influential broadcasters to launch Bing in the US later in 2018. One of them has indicated a firm commitment already. The US launch strategy represents perhaps the biggest commercial opportunity in Acamar’s global outlook. 

Should Bing achieve the next phase in its growth plan it is likely to become a highly attractive target to the media giants looking to expand their range of brands. It is highly unusual to be given the opportunity to invest in an asset of this type mid-stream. 

Furthermore, EIS shares have priority on sale and benefit from a 60% share premium, making this an attractive capital structure for EIS investors.

Target returns

Based on previous acquisitions within this sector, valuations seem to have little reflection on financial performance. They tend instead to be driven by the appeal of a concept that can be fitted into the acquirer’s existing distribution network and the potential to exploit its popularity. So, we believe the valuation for Acamar would not be predicated on a multiple of its current profits, but instead on what the brand could be worth to the acquirer. 

The management has confirmed it would not consider an equity valuation of less than £50 million. If the Base Case plan is achieved by 2023, the property could be worth significantly more than £50 million in our opinion. 

If the Management Case is achieved the value could increase exponentially, although clearly nothing is guaranteed.

Should the company have an equity value of £50 million on exit, investor returns could be approximately 3.5x after tax relief, as a result of the share premium and increase in the value of the business.

In a downside scenario, should there be no uplift to the £30 million pre-money valuation on exit, thanks to the share premium account EIS investors could still get a positive return even before taking into account EIS tax relief.

Please remember, returns are not guaranteed. Tax rules can change and benefits depend on circumstances. 

The market

Successful children’s entertainment brands can generate huge revenues, often over an extended period of time. 

Typically, a successful but early-stage brand will derive around two-thirds of its revenue from media sales and digital, with licensing contributing the rest. This usually changes when a brand reaches maturity, in which case licensing might be responsible for 80% of the revenue. 

The idea of licensing is not new. Beatrix Potter created and patented a Peter Rabbit doll in 1903, making it the oldest licensed literary character. She went on to create other merchandise, including Peter Rabbit-themed tea sets, clothing, board games, toys and colouring books and guides. Her spin-off merchandise and books provided large profits for both Potter and her publisher. The Peter Rabbit franchise is still going strong over a century later. The Peter Rabbit film released earlier this year was Sony’s highest-grossing non-Bond UK release. 

Peter Rabbit is not the only example. There are other children brands that have enjoyed commercial success on a similar scale, in some cases for long periods. 

Thomas & Friends (owned by Mattel), for instance, first aired almost 40 years ago in 1979, and has been a phenomenal success since. 

A Thomas toy engine is sold every two seconds somewhere in the world and the television series is broadcast to more than a billion households in 300 territories each week, including Britain, where it is aired by Channel 5. The range of products is immense: from lunchboxes and yoghurts to puzzles, duvet covers, walkie-talkies, potties and iPad apps. 

Another example is Peppa Pig, which is now approaching its fifteenth birthday. It is one of the top performing preschool properties in the world, with $1.2 billion in annual worldwide retail sales. It is broadcast in 180 countries and translated into 40 languages. There are more than 1,000 licensees and 12,000 branded products, from pencil cases and ice cream to bean bags and even Peppa Pig World theme parks in Hampshire and Milan.

Peppa Pig is produced by UK-based producer Astley Baker Davies, which struck a co-ownership deal with Canadian media giant Entertainment One in 2004. In 2015, Entertainment One took an additional stake in Astley Baker Davies in a deal worth £140 million, taking its share of the rights to 85%.

Other examples of brands which have enjoyed global success include Paw Patrol, Bob the Builder and Fireman Sam. Typically these brands are owned by media giants such as Mattel, Viacom, Pearson and Entertainment One. 

When they see a promising concept they are prepared to pay a premium to roll it out through their vast network, in some cases even if not profitable. 

For example, Canadian firm DHX Media acquired the owners of Teletubbies and In The Night Garden from BBC Worldwide for over £17 million despite both these brands making losses at the time of acquisition (2013). The price paid has little reflection on financial performance. It is instead driven by the appeal of a concept that can be fitted into the acquirer’s existing distribution network and the potential to exploit its popularity. 

Management team

The team is led by CEO and founder Mikael Shields. Over a period of 30 years, Mikael has established an international reputation for identifying, developing and producing a wide range of hit film and television projects including Nick Park’s Oscar winning Wallace & Gromit, the global phenomenon that is Pingu, BAFTA winning Hilltop Hospital, the multi-award winning Flatworld and Aardman Animation’s Rex The Runt. 

Exit strategy

As with all EIS companies, there is the option of a trade sale, a sale to another investor, refinancing or a stock market listing. 

Finding a strategic partner to take Bing global is an option the management will consider. Bing is already one of the most successful independent preschooler brands and could be a highly attractive target. Indeed, Acamar has already turned down a number of offers from some of the leading global media giants.

What to consider

This is a high-risk single company investment: capital is at risk. Please ensure you read the report and the Information Memorandum carefully, and make sure you understand the considerable risks of investing. You should not invest money you cannot afford to lose. Returns are not guaranteed. The value of tax benefits depends on circumstances and tax rules can change. 

Fees

Investors are investing in the Company directly so will pay no direct initial or ongoing charges. Acamar will pay an introducer fee (5%) to Wealth Club.

Our view

This is an exciting opportunity to invest in a hit show that has already proved its popularity and potential and which now has the chance to take its initial success to a whole new level. 

Over £7 million of the capital raised so far has come from the CEO and his family. Such level of commitment is rare and we believe leaves no doubt as to their passion and determination to make Bing a global success. It also means the Company has retained its independence and full control over its IP and rights over the majority of its revenues. If a successful exit is achieved, this strategy will enhance shareholder returns.

The capital structure is also attractive for EIS shareholders, as they get priority return on their capital plus a share premium of 60%.

If Acamar manages to build on the staggering success Bing has achieved in its first four years, we believe the Company could exceed the valuation of £50 million and therefore potentially deliver remarkable returns to experienced investors, although you should form your own view.

Wealth Club aims to highlight investments we believe have merit, but you should form your own view. You should decide based on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.

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