Private Equity Returns to Magazine Buying
A look at magazine-related M&A during the first quarter.
Basketball hall of famer Magic Johnson might not have acquired Johnson Publishingâ€™s Ebony and Jet, but the overall market for magazine-related M&A deals was certainly active during the first quarter of 2010.Â According to media investment bankers the Jordan, Edmiston Group, there were approximately 20 magazine M&A transactions through mid-March.
â€śThe mix was completely reversed, as consumer magazine deals accounted for 85 percent of total magazine deals in Q1 2009, but accounted for only 23.5 percent of total magazine deals in Q1 2010,â€ť says JEGI CMO Adam Gross.
What has been most notable, says Gross, is that private equity returned to the market as buyers of magazine assets during the quarter. Private equity groups over the last several months have absorbed mind-boggling losses as a growing list of publishersâ€”including the Readerâ€™s Digest Association, Source Interlink, Cygnus Business Media, and othersâ€”were forced into bankruptcy and their PE owners handed over control to lenders, taking a wash on millions of dollars in investments.
Some prominent examples of PE-fueled deals during the first quarter were Seguin Partnersâ€™ January acquisition of CFO from The Economist Group, Spectrum Equity-backed Canon Communications buying four properties from Reed Business Information and Boston Ventures-backed Northstar Travel Media picking up five brands from Nielsen Business Mediaâ€™s travel group.
Reed Phillips, a managing partner at media investment banker DeSilva + Phillips, says there still were a number of smaller, distress deals during the quarter, pointing to Dow Jones buying up Hearstâ€™s 50 percent stake in SmartMoney as significant because it â€śmakes a statement that they are dedicated to that magazine even in a tough economic environment.â€ť The deal effectively gives Dow Jones full ownership of the magazine.
Whatâ€™s in Store for 2010
On the heels of a massive economic downturn, one can only wonder if magazine M&A will continue to pick up steam through the rest of the year. JEGI is confident it will. Gross says the firm believes the M&A market for magazines in 2010 is likely to be more active than it was in 2009 and the second half of 2008.
â€śPrivate equity firms are sitting on nearly $500 billion and are looking to put up that capital to work through acquisitions, and the banks should be more cooperative in helping PE firms leverage their deals,â€ť he says.
Gross believes that large, global corporations will continue to divest the trade and consumer magazine assets they own that donâ€™t fit within their core markets. He also thinks privately-held companiesâ€”whether owned by entrepreneurs or PE firmsâ€”that have been sitting on the sidelines also should come to market â€śas valuations improve and the buyer pool increases in line with a stronger economy.â€ť
â€śAdd to this,â€ť he says, â€śthe fact that large, global corporations are holding unprecedented levels of cash on their balance sheets (S&P 500 companies have nearly $800 billion), and you can see why we anticipate a vibrant M&A market for magazines and other traditional and interactive media and information assets in 2010.â€ť