M&A in the nineties - acquisition and mergers of magazines - Panel Discussion

Folio: The Magazine for Magazine Management, Oct 15, 1993

Six financial experts talk to FOLIO: about how buying, selling and evaluating magazines have changed.

At a recent FOLIO: roundtable on mergers and acquisitions, participants joined to discuss issues such as the state of the market, sources of capital, creative ventures and "multiples" in deal-making today. The panel was arranged by FOLIO: general editor Barbara Love, and members included Mark Edmiston, co-chairman, The Jordan Edmiston Group; H. Mason Fackert III, managing director, Concord Ventures; Ivan Inerfeld, mergers and acquisitions partner, Coopers & Lybrand; Elliot H. Levine, tax partner, Levine & Seltzer; Martin Maleska, managing director, Veronis, Suhler & Associates; L. Mark Stone, managing director, AdMedia Corporate Advisors; Anne M. Russell, editor of FOLIO:; and Hershel Sarbin, CEO of Cowles Business Media and publisher of FOLIO:.

SARBIN: After the frenzy of the mid to late eighties and the slowdown in the nineties, what is the mergers-and-acquisitions climate now? What has changed in the lives of buyers and sellers?

MALESKA: Financing opportunities and the ability to raise substantial amounts of debt financing have changed, both in terms of the character of the debt and the amount you can raise. The size of the deal population is consistent with the end of the eighties, but the size of the transaction is substantially smaller. We see a higher degree of selectivity. People want to buy things that fit, and are reviewing their portfolios to see what opportunities exist. There's a greater use of the words "core properties."

EDMISTON: I think the advertising frenzy that accompanied the media transaction frenzy of the eighties is over, permanently. There aren't as many dollars going into advertising, and I think that's going to be true for all media for the next decade. Today, consumer magazine publishers are considering trade titles that might work with their publications, or are looking at other media that would support or extend their franchises. Publishers are also thinking of themselves as managing franchises more than as managing a business, all of which I think bodes well for the industry.

STONE: In the eighties, people were making deals because things were for sale and there were a lot of profits. In the past couple of years, the only strategy was to survive. The execution of that strategy was a conversion of fixed costs into variable costs, so that you could have enough cashflow to survive into the nineties. Now, publishers have the opportunity to think about real strategies.

FACKERT: We see a lot of firms that are looking for ad-driven trade publications in markets adjacent to their franchises. And there's more willingness on the part of larger publishers to sell parts of their portfolios that don't match.

LEVINE: For sellers, the nineties have been a reality check. In the eighties, multiples were eight-, 10- and 12-times cashflow, and sellers were saying they wanted 15, and they'd settle somewhere in between. Unfortunately, sellers still had that mentality coming into the nineties. Now, they look at a publication and say, gee, 10 times, and buyers say five times--if you're lucky.

INERFELD: I think there will be an increase in activity in the nineties. People are beginning to feel better about the publishing industry and to seek strategic acquisitions to round out their business.

In the eighties, there were some highly leveraged transactions driven by cashflow multiples. Because of the leverage, people began to cut costs and just hold on. Now, those who held on are going to see if they can sell. The valuation of a magazine in the nineties is going to be a heck of a lot different. I don't believe it will be cashflow-driven, although someone will attach a multiple to it after the transaction. We'll drive the transaction on potential, how it fits with the buyers, circulation growth, and things like that.

SARBIN: Since the multiple subject has come up, what's the rule of thumb? Can we talk about values and how you counsel sellers and buyers these days?

MALESKA: Multiples are such a quagmire that I'm reluctant to give you a number. We can say that seven is the low number, 15 is the high number, but you have to look at how it fits. Is it trailing earnings because of the state of the market, or is it the publication? Is it management's fault? Is management replaceable?

LEVINE: In the eighties, everything that was purchased or sold was done on a five-year game plan--dealing with an increment in cashflow that translated into more money when you sold it in five years. There has to be a new educational process that doesn't even discuss multiples. Until we get off that, the industry is going to be hurt because people preparing to sell will to try to increase the cashflow, which can hurt a publication's long-term prospects.

STONE: We're sending a signal here that multiples aren't important. In fact, they are, but only to a very limited extent. Multiples are something you look at ex post, not ex ante. Once the deal is done, you break out the calculator and see what it turned out to be. But if you start talking about the multiple that you want to a buyer, you're going to be in trouble.