XFML Acquires Shanghai Ad Firm JCBN for $43 Million Plus; Expands In Online Real Estate
Xinhua Finance Media Limited, the Chinese financial media company, is acquiring Shanghai-based ad firm JCBN Group for $43 million in cash up front, and possibly up to $69.9 million with potential earnouts. XFML believes the deal will help it target the high-net-worth demographic in China, as JCBN is strong in both online real estate and imported spirits. After the deal, XFML expects to be the top player in both of these markets, with greater than 50 percent market share. It claims the company is the largest advertising agent for the real estate portals at Sohu.com (NSDQ: SOHU) and Focus.cn. Other JCBN clients include international financial institutions and the government of Hong Kong. JCBN claims earnings of $4.2 million in 2006, on revenue of $17.3 million. This is a big move for the company, as the purchase represents more than 10 percent of XFM’s current market cap. Along with several other China stocks, the company’s shares have come under pressure lately, trading near their lows.Release.
Disclaimer: Our board member Larry Kramer is also on the board of XFML.
I've seen you cover XFM a couple of times now which I guess is fair enough and each time with the disclaimer that Larry Kramer is a board member, but enough with the positive articles!!!
Ask anyone working in China and they'll tell you the same thing (including several XFM employees I've spoken to), this company is a SHAM! They claim to be China's leading "diversified media group" making a big play of all their content businesses and vertical integration etc. Truth is most of their revenue (and its not revenue it is billings!!) comes from media brokers that they have acquired. I suppose you can call them "ad firms" but they certainly aren't ad agencies in the normal sense of the word. They are middlemen who buy up media space and then sell it on to others. As anyone working in China will tell you these companies are about as far from Sarbannes Oxley compliant as you can get, they rely on highly personal relationships between the principals and the media owners and buying them out 100% on a two year earnout is a recipe for disaster!
You say "Along with several other China stocks, the company’s shares have come under pressure lately, trading near their lows." So which other stocks would these be that have fallen more than 50% in 6 months? Sure Focus has retreated a fair bit (20%) in the past weeks but that was due to them releasing disappointing profits (they are still trading on a PE more than 3 times that of XFM as are most other quoted chinese media companies), I'd suggest XFM's fall of grace to a valuation which is not much above the cash they raised at IPO is down to investors realising that this whole company is at best an exampe of irrational exuberance in Chinese media, at worst a complete fraud with Class Action written all over it!
Good luck to Deloitte and Proviti on signing off the accounts for 08 (hint you might want to check out the PR, Consulting and Entertainment line items in cost of sales!). Hope Larry doesn't sit on the Audit committee!
Your analysis on European, Indian and US sectors is always spot on but if you are going to cover China without having someone on the ground you need to at least speak to a few people who are.