caito

Bankers speculated that the whole of AOL Europe could be valued at €1bn, while the French business could be worth €250m and the German business is valued at around €450m (Telegraph | Money | AOL Europe may go up for sale).

So, if I was interested in in buying AOL Europe, how would I value it? The bankers speculate a value of €1bn, but what is the business of AOL Europe? I mean, what exactly does AOL Europe provide in order to be competitive against the competitors?

They talk about 6 million subscribers… But if AOL Europe couldn’t monetize those subscribers, how should a new owner make a big difference or are they talking just about buying the six million customer contact data? That, of course, would value each customer at around €167. Why in heavens name should I value each customer at €167 if AOL itself doesn’t believe in the business anymore and wants an exit?

Of course, I understand their point of getting back at least some of the €7.5bn they paid to Bertelsmann, but that’s not my problem. Lets see and do a reverse calculation of those €1bn on a ten-year fixed NPV-basis and see what profit we’d need to make in order to achieve such a a goal.

Duration: 5 years
Investment: € 1bn
Number of customers: 6 million (steady over ten years)
Discount: 10%

A quick, back-of-the-envelope calculation shows me that we’d need to make around €1.75b positive cash-flow over ten years to “break-even” our investment. My assumption, obviously, is a bit more complicated then just the back-of-the-envelope calculation, but you get my point. The lower the profit at the beginning, the longer it takes to break-even. I don’t really know how much profit AOL Europe makes, but I was generous enough to let “them make” €100m, €100m, €150m, €200m (flat from year four on) for the 10 years in question (each year, respectively). With the above discount, which I think is very, very low, this deal would break-even at a total of €1.75bn positive cash-flow over 10 year life-time - which, by the way, results in € 16 to €33 net positive cash per customer per year!!

So, looking at this business from just the financial point it really doesn’t make sense. The brand is not worth much anymore in Europe, the incumbents are just too strong, AOL Europe missed the broadband train and a lot more. So, why should I buy it?

There is one reason, of course, for buying a pan-european brand like AOL Europe: If you haven’t got any pan-european brand/service as a national incumbent, you might consider AOL Europe as a nice vehicle and use it as a leverage. Same is true for national media companies without any significant new media assets. There are definitely some media companies who should consider making a proposal - but that proposal should be way below €1bn - I’d suggest something around €500 - 750m - but definitely not more (of course, I don’t know how much cash and what kind of assets you’d get additionally).

So, Telecom Italia might be in fact a nice purchaser, especially since italian new media companies are eager to grow europe-wide because their national market is saturated and partially even shrinking. Look at the major players in Italy and you’ll understand what I am talking about. Regarding media companies… I won’t tell who’d be the right candidate (due to various reasons) but I know of at least 3 big media companies who’d be the perfect purchaser for AOL Europe. Lets wait and see…