Well, I’m still recovering from the dreaded Man-Flu, hence why I’ve not yet commented on the big news from last week, that DGM have taken the advice I offered in my podcast with Fraser last month (I’m sure the consultancy fee is in the post, along with my xmas present) and de-listed from AIM through a Management buy-out to become a private company again. This was followed swiftly by the news that IBG have agreed a Nil-premium sale to TMN Media, owners of TheMutual.net. I’m keen to look atboth of these deals from the perspective of Investors, Affiliates, and the companies themselves.

In my opinion, neither of these changes are good news for Investors: Any serious investor should have been out of DGM a long time ago. The big money was lost 2 or 3 years ago now, and the stock has been dead as a dodo for a long time now. The potential for Investors to make any money disappeared a long time ago.

The IBG merger is another story altogether – They were my tip in the podcast as a long-term position for strong capital growth. Unfortunately that’s no longer possible, as thanks to the TMN deal, you now own shares in a completely different company, with a brand new management team, and different ideas. For those shareholders who bought into the IBG team, despite the nosedive the stock took last year due to a profit warning, the blood must be boiling, and I bet they wished they’d cashed out at 35 pence now, rather than been forced into accepting a 12.75 pence offer.

In fairness, the “nil-premium” merger does reflect some gains for IBG shareholders – They will receive 1 new ordinary share in TMN for every 3.765 ordinary shares held in IBG – That relates to the two shares relative closing prices before the merger, and of course in theory TMN is now worth considerably more, so the shares should go up? That is a distinct possibility, although mergers almost always lead to share drops as the teething problems of actually merging the two companies come to the fore – A quick look at the share prices of a few companies after mergers is always worth looking at: Take GWR and Capital Radio (price at merger in September 2004 was 400-410, closing price on Friday was 126.25), Morrisons and Safeway (Price at merger in March 2004 was 250-260, price six months later was 170-175, took 3 years to return to pre-merger levels)

So what do these deals mean for affiliates? Well, hopefully very little – There shouldn’t be any sweeping changes simply because of a change of ownership, and DGM and Affiliate Future should continue to be run as before (whether that’s a good or bad thing is an argument for another day!) – Of course new owners sometimes like to stamp their mark on things, but I don’t honestly expect too much to change “front-of-house”.

And what does this mean for the companies involved? Who’s got the better deal? Well, as I’ve said earlier, the MBO at DGM was the only way forward for them – Their share price was becoming a dead weight around their necks, and now they haven’t got to worry about the share price, or wooing institutional Investors or Investment Houses, they can concentrate on making money again – From the publicly available accounts, you can see that DGM haven’t made a profit since 2004, when they made just £220,000 – Less than most of their top affiliates make sat in their bedrooms – I really believe it’s a great move for DGM, and think they will go from strength to strength following this move.

I’m not so sure about the IBG/TMN merger, and that’s the main problem. With the DGM MBO, it was pretty much the only option, and the only way is up. For IBG, they were thriving, making a profit of £1.12m in 2006. I really liked the management team, and I liked the way the company was headed. I’ve only met the management of TMN once, and I certainly wasn’t impressed. You certainly can’t argue with the financials though – they’d made a profit pretty much every year that I’ve gone back over, including a £3.28m profit from a mighty £16.10 turnover in 2006/07. I’d like to do a lot more research about TMN before deciding whether to keep my converted IBG shares in TMN stock or not. As my main concerns are with the management team, I’d normally like to attend an AGM (or at least speak to someone I trust who attended) to ascertain the direction they’re headed. That’s gonna be tough to do with TMN though, as they’ve only just held their AGM in October, so it’s a long wait, by which time the shares could have moved considerably.

So, it’s gonna be a lot more research from me to try and find out the ethos behind the company and their intentions for the newly acquired IBG assets.. and that’s not something you find out easily, so I may just sell a few and keep a minimal holding to see how things play out for now.

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