Keeping Control In the Age of Private Equity
More often that not these days, top publishing executives answer to private equity ownership. With that, executives walk a tightrope between fulfilling their strategic vision for their company and meeting the financial obligations of their owners. Folio: spoke with several publishing executives on both the consumer and b-to-b sides who recently experienced ownership/partnership changes on how private-equity ownership affects their management style.
In May, World Publications bucked the trend of private equity takeovers by selling a major stake of the company to Swedish-based Bonnier Magazine Group, replacing the minority investment held by private equity firm Boston Ventures. For World founder and CEO Terry Snow, the biggest difference between private equity partners and strategic partners is pace. “When you have a partner with a preferred interest it forces you to be more focused on the shorter term positions,” he says. “Otherwise you won’t keep up with how their investment is appreciating or growing. With an equity partner, you have a shorter time horizon to make your decisions. It’s not really a conflict—it’s the nature of having that kind of partnership. If you’re a public company, the pressures are even greater—with quarterly earnings, the public markets punish you even more than private equity which incentivizes you to make better short-term decisions.”
Last November, Tuscaloosa, Alabama-based Randall Publishing, which specializes in trucking, construction and industrial magazines and generates annual revenue around $55 million, surprised the industry by announcing its sale to Wachovia Capital Partners and Randall CEO F. Mike Reilly’s newly-formed Randall-Reilly Publishing LLC. The deal, estimated at $75 million, effectively ended the interests of the family and estate of H. Pettus Randall III in the 71-year-old publishing company. The transition has been a relatively smooth one according to Reilly. “It’s been easier than I expected,” says Reilly. “B-to-b publishing is entrepreneurial. When you get partnered with an equity firm, all of a sudden you’ve gone from having to eat what you kill to where you see something you like, and it fits strategically, there’s really no such as thing as ‘too expensive.’ The question is, does it fit? Can you grow it?”
However, that emphasis on growth does contain risk. “The biggest challenges are often the biggest areas of contention, namely being able to take the required risks to grow the business while still maintaining the financial stability all equity partners like to see,” says David Pecker, CEO of American Media Inc. “We are fortunate at AMI to have equity sponsors like Thomas H. Lee and Evercore, companies willing to support us in many new initiatives.”
“We were looking at an acquisition that was a great company,” adds Reilly. “We put in what I thought was a great bid but it wasn’t enough. The next bidder put in two times more than we did. We were tempted to chase it and I think we did right thing to say no. Where you get in trouble is where you start paying more than you can afford or more than you can grow it to pay it back. You have to be careful you don’t pay more for things that make you leverage the company so much that you can’t keep the reins.”
Part of the advantage of private equity owners is being able to tap in-house experts. “Private equity is really smart when it comes to banking and you can add some really intelligent people to your company at no cost,” says Snow. “You have access to the best financial analysts and strategic planners to assist you in realizing your goals,” agrees Pecker.
Hanley Wood sees a benefit with JP Morgan, which acquired the company last year for $650 million. “One major difference is JP Morgan has managing partners who are consultants and we have free access to those consultants,” says Hanley Wood CEO Frank Anton. “Veronis didn’t have that structure as a smaller firm.”
Under the Magnifying Glass
Private equity firms tend to take a more active interest in new investments. “There’s not much difference between JP Morgan and Veronis Suhler on day-to-day basis,” says Anton. “One difference is that JP Morgan pushes harder to have us look at more deals and to look at bigger deals. They have us thinking about mega deals that we’ve never really considered before. For the last few years, Hanley Wood was doing well and VSS was focused on new deals. When VSS first bought us, the board meetings were intense but got less intense over time. Now board meetings are intense again, not in a bad way but in taking a long hard look at the business.”