2006 was a historic year by any number of measures for magazine-industry M&A. It was a banner year in terms of the total number of deals, the dollar volume, the big-name transactions, the multiples, the involvement of private-equity and more.
So what does 2006 portend for 2007? To listen to the pros, the deal brokers that serve this space, the time has never been better to explore a divestment or acquisition. AdMedia Partners, for example, reported that more than 70 percent of respondents to a deal-related survey believe M&A, driven by private equity, will increase over last year’s level. And nearly three-quarters of respondents believe that both buyers and sellers should act now.
DeSilva + Phillips, meanwhile, says this: "The outlook for M&A in 2007 is as good as we’ve ever seen. All the pieces are in place: Availability of funds, favorable interest rates, eager buyers without the time to build rather than buy, brands that need new delivery platforms."
And the start of the year seems to confirm that this rhetoric is not hyperbole. On January 25, the Swedish media giant Bonnier acquired a group of 40 magazines from Time Inc. for between $200 million and $300 million. Earlier this month, two highly acquisitive private-equity-backed companies, Aspire Media and 1105 Media, closed on a flurry of deals. The fast-growing list of 2007 buyers already includes Reed Business Information, Randall-Reilly Publishing, Meredith Corp., Hearst, Primedia (surprisingly), Hanley Wood, and DTN (the company that acquired Progressive Farmer).
All in all, then, it seems as though if you’re a seller, you’d better move now. Right? Maybe not. Conversations with several publishing executives suggest that some caution might be appropriate, and that some companies will sell where others will not. Folio: asked a variety of executives these questions:
- What’s the outlook for M&A for 2007?
- Which sectors are likely to be hot?
- What characteristics will the successfully sold company possess? Great margins? Ancillaries? E-media growth?
- What does every magazine-company owner and CEO need to know about M&A in 2007?
In response to question one, for example, three of five respondents were skeptical. "Money is available for large, cookie-cutter deals for financial players, but that makes it more difficult for the strategic industry players," reports Alan Douglas, CEO of Richmond, Virginia-based Douglas Publications.
And Tom Kemp, managing director at Veronis Suhler Stevenson, foresees a lot of activity in three areas: Vertical, ad-supported e-media, subscription-based services, and events. "What’s not hot?" Kemp asks rhetorically. "First, consumer magazines. They’re getting hit on advertising from the transition of dollars to digital. It’s a tough business to be in right now, although not as bad as newspapers. And also, controlled-circulation magazines are not hot. There are no strategic buyers for trade magazines. Reed, VNU, UBM/CMP, IDG, and Ziff have no appetite to buy those."
"The Key to Success"
William Pecover, CEO of Haymarket Media, puts the outlook for 2007 this way: "More over-hyped numbers skewed by one or two major deals, are trying to lure buyers in for one last hurrah before the market tanks."
Secondly, Folio:’s informal survey revealed a sense that it’s all about diversification. "You want a strong brand anchor with existing or potential diversified revenue sources," says Erik Levy, vice president of corporate development for Primedia. "Having a strong brand and print publication is key to success."
And Reed Phillips, managing partner of DeSilva + Phillips, is succinct. "Attractive businesses today have diversified revenue sources, growing e-media activity, a solid plan for the next few years, a defendable market position, and solid profit margins."
Asked what each publishing company CEO needs to know about M&A in 2007, respondents split two ways. Kemp provided the more analytical perspective. "The market will remain competitive, and multiples will remain high as long as debt markets remain robust," he predicts. "However, absolute interest rates have increased significantly. Don’t over-leverage your business based on current market conditions. Be prepared to cover debt service even if there is a slowdown."
Pecover took a more visceral approach: "What does an executive need to know about M&A? Far less. Focus on growing your business before times get tough."