Dough Waiting for "Go"

Folio: The Magazine for Magazine Management, June 1, 2003 by Jeffrey L. Seglin

M&A Deals January-April 2003

TO THE SWIFT GO THE SPOILS

ABRY may be feeling confident, but not everyone agrees that equity investors will have the best seat at the M&A table when the market picks up. Wilma Jordan, CEO of investment banker Jordan, Edmiston Group, believes it will be the strategic players, specifically those with unleveraged balance sheets, that will be best positioned to strike. "It's always easier for an unleveraged balance sheet at a large strategic corporation to be a buyer than it is for a buyer that has to go out and get debt in the marketplace to match their equity," she says.

Reed Phillips, managing partner of media investment bank DeSilva & Phillips, which worked with ABRY Partners on the Cygnus and Network Communications deals, believes that strategic players with clean balance sheets, as well as equity firms with cash to deploy, stand to gain. A third group equally poised to gain, he says, are those companies that combine an operating platform with private equity financing; they have the advantages of being both a strategic and a financial investor. Phillips calls members of the latter group "mugwumps," a term originally used to refer to a group of Republicans who in 1884 voted for Democrat Grover Cleveland as president, then soured on him and voted for his opponent, Republican Benjamin Harrison, in 1888 - only to return to support Cleveland for his winning campaign in 1892. By using the moniker, Phillips doesn't mean to suggest a group of wishy-washy reformers, but simply a group that is a cross between two heretofore opposite entities. Network Communications, which with its own capital has itself acquired some smaller companies to fold into its platform company since ABRY acquired it, would be a prime example of a mugwump.

As for acquiring attractive properties as they come to market over the next six to 18 months, what will it take for each of these groups to shore up its chances to become the winner? The real challenge isn't going to be accumulating the necessary capital (many are sitting on capital now), but rather in finding the properties to invest in that will yield strong returns. After all, equity investors like Koenig are only in this for the relatively short haul, until they liquidate their investment 10 to 12 years after a fund's inception.

The real winners are going to be those players who have the tenacity to work the market, to find the acquisition targets and scoop them up as quickly as possible. The trophy properties that get shopped around, while commanding a hefty multiple, are easy to identify. It's the hidden gems out there, those that might not yet know they're ready to be acquired, that may prove to be the true prizes.

"It was challenging in mid-2001, and it's still challenging today," says Koenig. "But challenging doesn't equate to 'you can't do well.' There continues to be a dearth of really attractive businesses to acquire, so you have to be more patient and dig a little deeper." She does her research in much the same way it is done by most in the magazine acquisition biz - by reading trade journals, using online sources, and sifting through the tower of papers that pile up on the side of her desk. "This stuff is all the stuff that I'm currently looking at - right at my fingertips," she says. She also attends trade shows, and works the two circular Rolodexes that sit next to her laptop and BlackBerry PDA. "I don't go anywhere without my BlackBerry," she explains. In a world of hunting deals, being accessible - all the time - is key.