Valuation Guy

Intertainment Valuation - 1.20.2012

In reference to the following press release:

http://www.theglobeandmail.com/globe-investor/news-sources/?date=+20120120&archive=ccnm&slug=201201200760159001

Hypothesis of what would happen if Ortsbo Inc (“NEWCO”) was spun out from Intertainment and publicly listed.

The new investor (“VC”) contributes $20m on a pre-money valuation of $210m.  Therefore, post-money valuation $230m for NEWCO.

Intertainment shareholders are provided a NEWCO stock dividend equal to 30% of the pre-money valuation and 27.4% of the post-money valuation.  Post-money value accruing to INT shareholders of $63m.

VC now owns 8.7% of the post-money valuation of NEWCO and INT owns 63.9%, or $147m.  Since Intertainment shareholders still own 100% of Intertainment, $147m of post-money value accrues to INT shareholders. 

Intertainment shareholders also own 100% of the other operations and divisions. 

The printing business has annual revenues ~$5m.  Assume EBITDA margins of 15-20% and a 6x multiple for a valuation of ~$5m.  (corroborated by 1.0x revenues).  I don’t know much about the other divisions but I will attempt a conservative valuation and say $15m in aggregate simply based on IP, users, relationships, workforce, etc.  Combining these two figures results in $20m of value accruing to INT shareholders.

Now let’s take a look at the Intertainment Sept 30 2011 Balance Sheet:

Net debt (i.e. cash less debt) - $19m

Net working capital - ~$0

Other tangible / liquid assets - ~$0-$3m

So an additional ~$20m of value accruing to Intertainment shareholders.

Let’s summarize..

Total value accruing to Intertainment shareholders (as at 1.20.2012): $250m

Shares issued and outstanding: 283m (from the 9/30/11 FS Notes)

Per-share valuation of Intertainment (as at 1.20.2012): $0.88

Keep in mind that this NEWCO valuation ignores any future growth potential from Ortsbo.  The current valuation of NEWCO (I.e. Ortsbo Inc) is from the perspective of a VC-like investor that has studied the company, markets, technology, user data, and revenue opportunities.  The venture capitalist’s goal is a 5x+ return on NEWCO which would drive value for INT shareholders to well over $3.00 per share.

Sources: Press releases, financial statements, my finance and valuation education

Disclaimer: This valuation is entirely my own opinion and should not be used by any person to make any investment decision without proper due diligence by that individual.  This may be the first time anyone has ever gotten a reasonable handle on this company’s valuation.