Private equity is the dominant force in publishing M&A these days, whether as purely financial or strategic-private equity hybrids They are applying pressure on publishing companies to focus on the bottom line while generating opportunities for significant short-term growth.
But what are private-equity companies looking for in potential publishing acquisitions? We polled a variety of private-equity firms on what their checklist is for potential acquisitions. While there is crossover, each has its own criteria for what makes a good acquisition.
For Pfingsten Partners, the list boils down to five key elements: Size of the market; customer relationships; quality of content; growth potential; and potential for operations improvements. “We tend to operate in the middle market or lower end of middle market,” says senior managing director Tom Bagley. “They tend to be sole proprietors or family-run businesses. By professionalizing the management you can improve the product.”
ABRY Partners wants a team that’s flexible. “Because of the evolution of how media is delivered, we’re looking for a management team that looks at its products as brands, whether it’s delivered in print, events or online,” says president Royce Yudkoff.
Boston Ventures likes a company that’s willing to push the envelope. “Now more importantly than in the past, you need a record of innovation,” says operating partner Gerald Hobbs. “There has to be some risk-taking. At the same time a lack of controlled systems wouldn’t be good.”
Private-equity firms also differ from strategics on the matter of financing. “Private equity and strategic players all look at the same numbers but private equity puts much more focus on the trailing 12-month EBITDA,” says Scott Peters, managing director at the Jordan, Edmiston Group. Strategics and hybrids tend to focus on the human capital part of the deal;they will integrate or cut where there are redundancies. Pure-play private equity tends to need all the employees and tends to focus less on them in the deal process.
How Much Access?
Private equity firms differ on how much access they need from prospective sellers. Pfingsten prefers 90 days of unfettered access to management and employees. “Sometimes that’s not possible but the minimum you need is 60 days, start to finish,” says Bagley. “Part of the problem with the auction process is it truncates that time frame.”
“It takes 10 to 12 weeks to do a thorough evaluation,” says Hobbs. “We probably need two, three years of history; operating metrics; a refined view of the budget or one year projection going forward.”
For ABRY, the evaluation process takes a month, comprised of analysis of financials, market position and the management team. “Management interviews are key;you can read a package but unless you talk to management it’s hard to get an understanding of the business,” says Yudkoff.
However, even with that process there can be major stumbles. Last month ABRY filed suit against Providence Equity Partners, charging the firm it offered misleading financials that caused ABRY to overpay ($500 million) for F+W Publications. ABRY is seeking to rescind the deal or collect unspecified damages. While buyers often discover later that they’ve paid too much, it’s an unusual move for one to try to nix the deal after the fact.