Early signs suggest that 2008 will be another banner year for magazine mergers and acquisitions. The big unknown at this point-and a factor that could tip the scales either way-is the capricious lending environment.
Considering the amount of private equity funds still available for print media acquisitions, the deal pace at the high end will likely continue unabated. But what about the smaller properties?
Strategic Bolt-Ons More Popular in 2008?
Recent discussions with buyers and sellers across the board portend a developing trend for the New Year: The larger strategic buyers are likely to resume the search for the smaller add-on properties to flesh out platforms acquired or built during the past few years.
Does that mean multiples paid for smaller titles and companies will skyrocket? Not likely. Multiples will probably hover in the same range-four to seven times adjusted cash flow-even though demand is expected to tick upward. Buyers remain cautious, even skittish, and the smaller the deal, the more challenging it will be to close the transaction.
Sweet Spot Scarcity
Meanwhile, sellers with revenues between $10 million and $20 million with good earnings remain in a very strong position. However, acquisition opportunities in this sweet spot are scarce. Hence, the renewed focus on strategic acquisitions under $10 million. The operative word: Strategic. One caveat, however, is that deals at the lower end of the scale are most vulnerable to whims of the bank lending climate.
If you are a publisher with revenues at the lower end of the spectrum, 2008 could be an optimum time to cash in your chips. Here are some of the factors buyers will be examining carefully-and which will have a big influence on whether your properties sell at the higher end or the lower end of the multiples scale:
- Content remains king. A superb editorial product serving a growing market continues to be a key factor in determining value. Buyers will be looking at content, in all its forms and iterations, as the avenue to enhancing brand awareness, market presence, and profits.
- A strong management team is vital. Buyers tend to leave top management in place and fund growth initiatives with a proven workforce.
- Well developed online initiatives. These will be valued in addition to targeting leading magazines in growing markets. Operating a magazine-based Web site is no longer enough. Buyers will measure value against the presence of a host of creative e-services that engage reader and advertiser alike. A successful events division will further increase value. The ideal acquisition candidate will offer the "Golden Trifecta" of communications: Print, online and events.
- Higher frequencies sell more frequently. Buyers favor print titles with publishing frequencies of monthly or greater. Less-than-monthly publications are viewed as less likely to command reader share-of-mind, even with strong Internet offerings.
- Numbers remain critical. One factor that won’t change in 2008 or any year is that deals of any size will be largely numbers-driven. Buyers will look closely at sales and earnings history, and although they will not pay a premium for future growth potential, they will indeed favor properties trending upward. Sellers are cautioned not to inflate the bottom line by slashing customary expenses or failing to reinvest in the product. Savvy buyers will see through the guise and instead base financial performance-and, hence, value-on industry norms. This is especially true with the under-$2 million publishers. Operating "lean and mean" is not necessarily an advantage when you put your company or title on the market.
Michael D. Kreiter is director at W.B. Grimes & Co., a Gaithersburg, Maryland-based investment firm for the media industry. He can be reached at firstname.lastname@example.org.