This week, Noble Investments (UK) plc—a London-based international rare coin, banknote, medal and stamp dealer, as well as auctioneer (and a constituent company of Skate’s Art Stocks Index)—made an offer to acquire The Fine Art Auction Group (“TFAAG”). TFAAG was formed in 2011 through the acquisition of Bloomsbury’s rare books & manuscripts auction by Dreweatts, a small art auction business of Sotheby’s/Christie’s vintage established in 1759. TFAAG was built on the idea of exploring the synergetic effect of two auctions operating in different product categories but sharing a single management, marketing budget and sales strategy.
TFAAG operated as a consolidated entity for about a year and a half, and the strategy has clearly worked. According to a filing made by Noble with the UK regulator, TFAAG’s 2011 accounts looked solid with the firm reporting sales of £6,800,690, EBITDA of £1,006,495 and profit before tax of £525,772. Net assets were £1,128,358 as of December 31, 2011. While the accounts for 2012 have not yet been reported, TFAAG seems to be operating with a smaller operating profit margin than its larger listed auction house peers. Nevertheless, the firm’s business model appears to be robust enough to preserve its niche in the highly competitive UK art and collectibles market.
TFAAG is now moving up in the food chain, becoming an acquisition target itself. Noble is one of three international publicly traded collectibles firms (the second largest after Santa Ana-based Collectors Universe in terms of sales); the company’s primary strength is in servicing the numismatics market. Noble’s acquisition would be a repetition of the TFAAG story—another consolidation play with the new Noble Group spanning its auction and dealing activities across the broadest possible collectibles segment, from coins and stamps to fine art and memorabilia.
Buying TFAAG is a “transformative acquisition” deal for Noble. Valued at around £30 million, with sales of about £13 million and a net profit margin of an enviable 18%, Noble is unlevered and has been struggling to find ways to grow in recent years. Stanley Gibbons, its stamps-market rival, has produced a far superior growth rate due to its more aggressive and generally more successful push into Asia. Collectors Universe, while plagued with management changes and a lack of leadership, has nevertheless managed to grow topline and made an important acquisition in the online space. So Noble has responded; the purchase of TFAAG is a major bet for the firm in that Noble is not only trying to move into more valuable auction categories, but it is also paying a significant price for a target equal to approximately 15% of Noble’s own enterprise value. TFAAG is valued at up to £5.48 million (with some variable component in the deal structure), comprising an initial consideration of up to approximately £2.75 million and deferred consideration of up to approximately £2.73 million.
While significant for Noble, the valuation is actually very reasonable with TFAAG being acquired at a sales multiple of 0.8 and an EBITDA multiple of 5.5. Noble’s respective multiples are 2.3x sales and over 6.0x EBITDA; the weighted average multiples for Skate’s Art Stock Index are about 2 and 8, respectively. Not only is Noble paying a good price for a profitable firm, which, once consolidated, would boost Noble’s revenues by 50%, it is also using a clever structuring for the deal, deferring almost 50% of the payment and using its own stock as acquisition currency. Noble has also brought two senior executives from TFAAG into its management board, which shows that the integration strategy was clearly thought through as well.
Skate’s welcomes the move and considers it to be perhaps the best acquisition among Skate’s Art Stock Index listed companies this year. We are therefore increasing our target price for Noble from £1.8 to £2.3 per share with immediate effect.
For more details about Noble’s acquisition, please visit www.skatepress.com/?cat=137.
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