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Don’t Be Too Hasty to Sell

By Michael Kreiter

One question publishers frequently ask when they decide to sell is, “How long will the process take?” A fair question, and one for which there is no simple and universal answer. There is, however, an important lesson associated with this question, and that is: be prepared to devote months, and maybe longer, to complete the transaction. Sellers who are in a hurry are at a distinct disadvantage.

Publishers are often surprised, even shocked, to learn how long the process may take. In today’s robust M&A market, it’s easy to assume eager buyers will descend upon an available media property and race to complete the deal. That is usually not the case, especially with smaller magazine operations.

Let’s analyze the components of a transaction and see why it can be such a time-consuming process:

• Gathering and compiling information about the property that’s going on the market—including at least three years of detailed financial history—can take weeks, especially if the data are presented in the comprehensive format of a typical Offering Memorandum (“book”).

• Reaching potential buyers, executing non-disclosure agreements, delivering initial documents, and allowing buyers adequate time to evaluate the data and respond with questions can consume months, especially with busy executive schedules and a profusion of possible delays: Vacations, annual conferences, and more.

• Meeting with potential buyers and negotiating the terms and conditions of the deal may also take weeks or months. This process may involve a number of personal meetings and conference calls. Since most publishers have other priorities—such as running the business—this step, too, is subject to delays and interruptions.

• Even the seemingly simple task of executing a letter of intent (LOI) can drag on for an eternity. It is at this point that outside attorneys often become involved, and it can take time to hammer out language acceptable to all parties.

• Remember, the LOI is a non-binding agreement, and many a deal has fallen apart at this juncture. The seller, often discouraged and frazzled, has by now invested months and must now return to square one—and possibly face diminished market potential.

• If the transaction moves forward— and the negotiating parties are reasonably cooperative—the due diligence process should be completed quickly—a matter of days at the most.

• But executing the final purchase agreement can be another story. Even a small transaction may require a fairly detailed document, particularly when non-competes, consulting or employment agreements, promissory notes, and asset allocations are involved. Again, it consumes time, and requires a lot of give and take, for attorneys to craft language that is acceptable to all parties. Meanwhile, the buyer may experience additional delays in securing financing or convincing backers of the merits of the deal.

• The actual closing can be completed in the time it takes to sign the paperwork. But it’s wise to remember that even after the LOI has been signed, due diligence completed, and the purchase agreement prepared, the deal can still fall apart.

Sellers have some control over how long the transaction may take, but it is limited. Some sellers will impose deadlines on buyers to meet various steps of the process. Unless those deadlines are realistic, buyers simply cannot or will not comply. The best answer to how long it will take is at least three to five months and probably much longer.

Michael D. Kreiter is director at W.B. Grimes & Co., a Gaithersburg, Maryland-based investment firm for the media industry.

By Michael Kreiter

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