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Will the Deal Drought Continue?

A challenging time for magazine M&A.


Jason Fell By Jason Fell
09/02/2008 -12:49 PM






During a recent FOLIO: magazine finance Webinar, DeSilva + Phillips managing partner Reed Phillips said that he remains concerned about the credit market and doesn't see leverage multiples for debt financing improving over the next several months.

"There are far fewer lending sources that are active now than there were a year ago," Phillips said. "That means, in terms of supply and demand, they can charge more and they can be tougher on terms. A year ago, borrowers were really in control and could dictate terms and it really got out of hand. Now, it's completely reversed. The folks who are lending the money, and the financial institutions, have the upper hand, and therefore it's harder to borrow."

Phillips said that, on average, leverage multiples in the spring of 2007 were about 6.5x EBITDA. This summer, those multiples are more like 4.5x EBITDA.

"I think that's absolutely going to continue through the end of this year and into early next year," said Phillips. "I just hope that it isn't much longer than that. But, I'm not yet convinced that it won't be longer."

Indeed, even this summer we've seen magazine deals buckle under the pressure from the collapse of the sub-prime mortgage market and the shaky credit market. Last month, the sale of Entrepreneur magazine publisher Entrepreneur Media to Texas-based Arlington Capital for a reported $200 million fell apart because, according to CEO Peter Shea, "the debt market has made it a very difficult market for [buyout] funds to raise debt financing at a reasonable multiple and percentage rate."

Does this mean that other big magazine deals also won't get done? Not necessarily, but it sure makes the process a lot more challenging.

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