Reader’s Digest Association
Reader’s Digest Association
Buyer: Investment Group led by Ripplewood Holdings LLCSeller: Reader’s Digest AssociationSale Price: $2.4 billionDate: Agreement made in November (Pending shareholder approval)Takeaway: A private-equity firm gambles that it can breathe new life into a colossal but fading brand.
The November sales agreement between Reader’s Digest Association and an investment group led by private-equity firm Ripplewood Holdings was the biggest consumer deal of 2006 at $2.4 billion. The deal includes the purchase of RDA for $1.61 billion, or $17 per share, and the payoff the company’s $800 million debt.
Although the transaction, which is expected to close in the first quarter of 2007, came as a surprise to some, others say Reader’s Digest had been looking for a buyer for some time. And some say the company, which has annual revenues of about $2.4 billion and EBITDA of $185.8 million, actually blew the opportunity to make about 9 percent more in the sale by not taking Ripplewood up on an unsolicited bid it made for the company in early 2006.
According to a regulatory filing made by Reader’s Digest in December and first reported by The Street.com, Ripplewood offered Reader’s Digest $18.50 per share to buy the company in March of last year.
Once it takes over at the sale’s expected close in March, Ripplewood, and RDA CEO Mary Berner, who replaces Eric Schrier, must find a way to reposition Reader’s Digest for growth. While RDA has had success with 16-month-old Every Day with Rachael Ray and through its 2002 purchase of Greendale, Wisconsin-based Reiman Publications, it has struggled with its flagship publication, Reader’s Digest.
The 84-year-old publication, which has had little luck wooing younger readers, saw ad revenues decrease 3.8 percent, to $289.5 million, in 2006, down from $301 million in 2005. Ad pages fell 6.3 percent, to 995, from 1,061.52 in 2005. And, in a reflection of the magazine’s aging demographic, its large-print edition took in almost $14 million in ad revenue last year, a 42.3 percent increase over 2005 revenues of $9.8 million.
Some believe the secret to reviving the brand will be the marriage of Reader’s Digest direct-mail products with those already owned by Ripplewood, while others believe Reader’s Digest must begin making investments in new products and an investment in modernizing its flagship publication.
Comments: Anytime you spend that kind of money to buy a product your best rate of return is through organic growth and acquisition…Back in the nineties they didn’t spend a lot of money on new products. Ripplewood sees this as an opportunity to invest in new products for Reader’s Digest and market its Time Life and My Weekly Reader products to subscribers.