This morning, leading out-of-home advertising network operator Focus Media (FMCN) entered into an agreement to acquire competing in-store advertising network operator CGEN Digital Media for $350 million ($168 million in cash plus a $182 million earn-out). The announcement came just as CGEN was scheduled to issue $128 million in a US IPO later this week. We estimate CGEN was on track to generate 2008 earnings of $19-$20 million (up 100%) on revenue of $70-$75 million (up 65-70%). This forecast is consistent with Focus Media’s statement that the proposed purchase of CGEN reflects a 2008 multiple to GAAP earnings of 17.5x ($350/$20 = 17.5x).
The acquisition of CGEN comes on the heels of two recent IPOs from China's out-of-home advertising sector, a rapidly emerging industry in China with very strong growth prospects. AirMedia, the largest digital advertising network operator focused on air travel, went public in early November, pricing at $15 per share (above its $9-$11 range) and now trading at $20, up 33%. Last week, VisionChina Media, which operates the largest out-of-home advertising network over mass transit systems in China, went public at $8 per share (below its $9.50-$11.50) and closed flat in its market debut.
