You are reading it first here- According to a reliable source Reliance–ADAG along with Deccan chronicle holdings is in preliminary talks with Northgate Technologies, a listed company to acquire Bharatstudent, social networking portal owned by Northgate .
The talks are said to be in preliminary rounds and buyers are possibly looking for a distress sale looking at cheap valuation at which the company as a whole is trading. The market seems to have already sensed this as volume and price of Northgate in recent days has seen tremendous upside movement. Northgate currently has a market cap of 170 crores much lower than 2400 crores touched at the height of 2008 boom.
Bhartastudent is owned by Social Media India Ltd. ,a wholly owned subsidiary of Northgate. It may have been separated into a subsidiary at the first place to facilitate its independent sale.Promoter last fiscal acquired 4% minority interest in Social Media India for Rs 10 million although it may not reflect the true value.
Northgate, few days ago also intimated Stock Exchanges regarding its intention to sell few of its online properties. It stated:
“Northgate technologies Limited has over recent months received a number of approaches from interested parties in relation to -“BHARATSTUDENT.COM” and “ZIDDU.COM”. As such Northgate Board of directors has appointed the independent corporate finance company to assist with deliberations involving potential alternatives for the operation-including the possibility of a trade sale of bharatstudent.com”
What really went wrong?
Northgate at one point was responsible for some ground breaking services like Axill, 15 days publisher Ad programme along with Ziddu.com, becoming first service to allow resume and unlimited downloading capability thus creating a wave of such services.
The only thing gone that went wrong was its dependence on small and medium Advertising spenders spreading across many countries. In a way to appease their shareholders they started giving away credit to their Advertisers, so booking sales without any real cash flows. It posted a 357 crore loss in the recent quarter as many of its advertisers defaulted on the payment and at the same time it also had to write off certain online assets.
Way forward?
The only way forward for company is to sell its loss making division in order to continue pumping more money in other profitable and potent divisions like AXILL, a wholly owned Ad network. The selling away of divisions like Bharatstudent would also hinder its future growth prospects as at current market they may not be able to command much premium valuation.
Opportunity for buyers?
Bharatstudent is said to be No.3 social networking site in India.It currently attracts over 3 million active subscribers and 70 million page views monthly.
The buyers would mostly be interested due to education and youth domain focus of Bharatstudent. As education businesses today command a significant premium.
R-ADAG entertainment division through this acquisition may be looking at creating basket of other online services ahead of its Mega-IPO. R-ADAG may also benefit by re-positioning the site as complete education based network providing bouquet of other educational services under its umbrella. Another sister firm Reliance capital already owns 3.6% stake in Northgate.
For Deccan its another opportunity after IPL to be a part of next high growth potential arena as its cash flow from print media division shows steady growth calling for greater focus on online division.As a matter of co-incidence bharatstudent earlier acquired advertising rights for Hyderabad ICL team. It is also important to be noted that earlier HTMedia, another publishing major acquired Desimartini.
This deal may also see new buyers entering the fray due to price factor and would eventually set a benchmark as the media property comes from one of the BSE Listed Online conglomerates. Bharatstudent case also defines the helplessness of online biggies to monetize their online properties in a significant way.
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