Sources: Divestment of Remaining Two Ziff Units ‘Going Nowhere’
Ziff Davis Media, which last week announced it had successfully sold its largest unit, the Enterprise Group, is now racing against the clock to sell its remaining two units, the Game Group and the Consumer/Small Business Group.
And with time running short on the company’s ability to generate enough cash to cover fixed costs, at least two sources are saying that the level of M&A activity around the other two properties is minimal.
"I have no inside information," said one source with deep connections in magazine-industry M&A, "but I’ve heard it’s going nowhere. Unfortunately for them, it appears to be extremely challenged."
Another source with extensive knowledge of magazine M&A said nearly the same thing in a separate interview. "There is no active process going on right now," this second source said. "There are people that have expressed an interest, but at a price that Ziff wasn’t willing to consider. So there’s a little bit of a standoff. The valuations from the buyers are very different from the valuations of the sellers. And it’s not one of those gaps that you can sit down and say, ﾑLet’s work it out.’"
Ziff’s Enterprise Group, which includes Baseline, CIO Insight and eWeek, was sold last week to venture-capital firm Insight Venture Partners for $150 million with the possibility of $10 million more depending on the unit’s performance. The Enterprise Group is the largest of the three groups, with revenue of about $80 million. The Consumer/Small Business Group generated $62.3 million in 2006 and the Game Group generated about $40 million.
Ziff’s debt-payment requirements and inability to borrow more money make it essential to generate enough EBITDA to cover what one analyst said will be as much as $50 million in cash needs for 2007. EBITDA for 2006 was about $27 million. In short, the cash needs far outstrip the company’s current cash generation, making divestment of the remaining groups this year essential.
In some ways, the sale of the Enterprise Group makes the company’s financial position even more challenging because the subtraction of that group’s revenue means there is less money to cover the costs of central services. "It’s not like they can cut out 40 percent of their corporate overhead," the analyst said. "They are going to be in a bigger negative cash position. It means they’ve got to get this puppy completed."