NEW YORK (The Deal) -- Sequential Brands Group (SQBG) - Get Sequential Brands Group, Inc. Report is paying a rich multiple to acquire Martha Stewart Living Omnimedia (MSO) for about $300 million in a transaction announced on Monday.
The multiple works outs to be about 23 times the nearly $13 million of adjusted earnings before interest, taxes, depreciation and amortization that the company is projected to generate for the fiscal year ending Dec. 31, according to data provided by Bloomberg.
The target has been shopped to for the past year or so, and all of the major players -- including heavyweights Authentic Brands Group and Iconix Brand Group (ICON) - Get Iconix Brand Group, Inc. Report -- have taken a look, this person said.
The deal with Sequential Brands Group provides for a 30-day "go-shop" period in which Martha Stewart Living Omnimedia could seek out a better offer.
And the source wouldn't completely rule out a rival bid.
There is always a chance that one of the smaller players in the marketing and branding space hasn't had the opportunity to do due diligence. Authentic Brands Group or Iconix Brand Group could take a second look.
The multiple for Martha Stewart Living Omnimedia, once the entire business in converted to a pure royalty stream by its new parent Sequential Brands Group, may also look more similar to what historically has been paid, the source said.
The company, for example, still produced some of its own goods and held inventory, the source noted.
A buyer such as Sequential Brands Group prefers to license out its brand names and collect royalties, eliminating the risk and cost of operations and inventory management.
Sequential Brands Group could choose to sell the part of Martha Stewart Living Omnimedia that continues to produce goods and then license the Martha Stewart name to that sold-off business, the source said.
One caveat, however, is that even at a lower, post-deal multiple, the valuation still appears lofty for a business that rather than owning the Martha Stewart Living Omnimedia name outright, instead appears to hold a perpetual license, according to regulatory filings.
Martha Stewart, the founder and chief creative officer of the the target, continues to directly own her own name via MS Real Estate Management as of June 13, 2008, according to regulatory filings.
Martha Stewart Living Omnimedia provides MS Real Estate Management an annual license fee of $2 million under the agreement. And the target's exclusive use of the Martha Stewart Living Omnimedia name would cease if the founder and chief creative officer were terminated as an employee or if she were to quit for good cause.
Martha Stewart Living Omnimedia and Sequential Brands Group didn't respond to requests for comment or clarification on the subject.
Last year, Stewart's company sold the licensing rights to Martha Stewart Living Omnimedia and www.marthastewart.com to Meredith Corp. (MDP) - Get Meredith Corporation Report, under a 10-year agreement between. Meredith manages sales, marketing, circulation and related processes, while Stewart's editorial team oversees content.
Sequential Brands Group owns brands such as Avia, in the fitness market, and Linens 'N Things, in home goods, and licenses them to retailers, wholesalers and distributors. The company has now added its biggest name, at a steep cost.
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