Business

DMGT wants to go private – its plight underlines why so many family businesses don’t like public markets

Investors, and the media, could easily make a fuss over the way Jonathan Harmsworth, 4th Viscount Rothermere is trying to take his media business private.

But the deal amounts to a sensible bit of family business restructuring, where excess capital gets ploughed into removing Daily Mail & General Trust from a stock market listing that is failing to grasp its potential.

If it were based in Silicon Valley, it would be worth a fortune

For twenty years, in fact, DMGT has struggled to get its share price over the £10 it achieved at the peak of the internet bubble in 2000. It only returned to that level following confirmation of its new privatisation plan on 12 July.

The proposal is an indictment of the value put on the company by active managers who focus on its media interests, particularly the Daily Mail. 

As a result, DMGT has been viewed as a stodgy value stock rather than a growth company. The market’s value as a funding instrument has disappeared. 

Stock market investors are unmoved by its venture capital arm. They are weary of losses from MailOnline, a free online site, now the world’s most-read English language publication. It has huge potential in “programmic advertising”, where algorithms request competing bids for adverts targeting specific parts of a site. If it were based in Silicon Valley, it would be worth a fortune. 

Elsewhere, DMGT voting control exercised by the Rothermere family is seen as a negative, rather than a privilege.

Investors have particularly failed to fully recognise the abilities of Rothermere’s top team, led by chief executive Paul Zwillenberg, a former senior partner of Boston Consulting Group, who is completely at home in the digital world.

The failure of the public markets to put a decent rating on DMGT’s shares also exposes Rothermere to the risk of passing stock market activists who are currently making life at Glaxo Wellcome a misery. A portion of DMGT’s register is made up of passive investors who add nothing to the debate. 

In contrast, private markets are awash with liquidity and the Rothermeres are not the first family to attempt the switch. It makes you wonder what will happen to the stock market, with private equity on the prowl.

DMGT has been massively successful in getting cash out of its venture capital investments. Starting out as a media business seeking to fund VC deals, VC is now supporting media.

Three deals – Zoopla (estate agency) Hobsons (education) and Genscape (energy data) – have brought £1.2 billion into the group. 

DMGT kept in touch with Zoopla founder Alex Chesterman, and backed him again at digital car outfit Cazoo, which is set to float via a $7 billion SPAC deal. In the process, DMGT has turned an investment of £117 million into shares worth £970 million.

Another bumper surplus is expected from a venture called RMS, which offers catastrophe risk modelling for insurers. 

Other deals involving a fashion resale market, more estate agency, dietary supplements and the New Scientist have potential of their own. Stakes in a laundry business and Euromoney have been sold.

Rothermere’s plan is to distribute a stake in Cazoo and cash from RMS and elsewhere to shareholders via a 610p special dividend. An offer for the rest of the company could total 251p a share, putting an enterprise value of £810 million on the business following a 20% fall in interim profits to £47 million in the half-year to March, following Covid-19.

It is possible investors who have overlooked DMGT for years will argue that Rothermere is using his voting control to privatise his company cheaply, while it is making a loss. They may want a better price or push for DMGT’s outright sale to private equity. 

But Rothermere’s position should be protected by his voting control. Being old money, he will also take the view that he should take the chance to go private now, while the markets are kind enough to help him in the endeavour. 

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