Basic steps in the courtship dance

Folio: The Magazine for Magazine Management, Feb 1, 1997 by John E. Hempstead

Say a potential buyer who is interested in acquiring your magazine company is coming to see you next week. Your guest might be the managing partner of a private investment firm or another publisher who is interested in your company -- which publishes several monthly healthcare trade magazines. This will be his first visit, and you'd like it to go well. What should you do to prepare for the meeting?

First, spend some time imagining yourself in the prospective buyer's shoes. Think about all the things you would want to know if you were considering purchasing a company like yours. Ask yourself why the buyer thinks your company might be a good investment opportunity.

Perhaps synergy is at play. A prospective synergistic buyer will see an opportunity to enhance the profitability of his or her own related business by purchasing your company, Say the buyer publishes a weekly newspaper targeted to hospital executives. By adding your magazines to the mix, Your prospective buyer might be able to generate additional ad sales that would not have been possible otherwise.

Or perhaps efficiency is the motivating force for your prospective buyer. A publisher who has production facilities that are less efficient than yours might plan to shift some production to your facilities, creating an improvement in the profitability of the combined entities.

K-III Communications Corporation's $180 million acquisition of properties from Cahners Publishing Company is a classic example of a synergistic buyout. For K-III, the purchase of American Baby, Modern Bride, Sail and seven other consumer magazines filled gaps in its stable of special-interest and consumer titles, and allowed it to create more package deals with advertisers. The acquisition also gave K-III considerably more clout on the newsstand.

Keep in mind that because a synergistic buyer can create an additional increment of earnings for his or her company, he or she may be willing to pay more for your company. However, the amount of the potential profit improvements the buyer will be willing to share with the seller in the form of an enhanced purchase price is determined by the relative negotiating strength of the parties.

There are several other things to think about and do before your prospective buyer arrives.

Prepare an answer to the big question. You need to have an honest -- and positive -- answer ready for the question, "Why do you want to sell your company?" Good answers include statements like, "The opportunities in this growing marketplace are so great. We need the additional capital and the resources of a new partner to take advantage of them." "We are divesting our healthcare titles so we can further pursue our interests in travel trade publishing." "We are seeking an experienced publisher who can help transform the magazine company into an even better enterprise." "I need to sell my company to obtain liquidity in my assets." "My health and/or age demand that I retire."

Thomson Newspapers, for example, recently sold several of its daily newspapers that no longer fit the company's long-range plans. The sale of these successful newspapers completes its reorganization into a specialized publisher of business, legal and travel information, and repositions the company for future growth as a marketing and communications company in selected regional markets.

Paint a picture of the future. Any buyer will almost certainly be more interested in the future than in the past. The future, after all, is what he or she is buying. The past is of interest only because it provides guidance in predicting what is to come. Therefore, your discussion of your magazine company should be future-oriented. Tell the potential buyer what your sales and profits are going to be next year and the year after that. In advance of the meeting, prepare financial projections that look three to five years into the future.

Spend some time thinking about your strategic vision for the company. Prepare yourself to answer the question, "Where do you see the magazine company in five years?" Explain where you want to go and how you intend to get there. Talk about your plans for sister publications, electronics spin-offs, trade shows and the like. Discuss how these will positively impact the bottom line. That's what the buyer will be most interested in hearing.

Make yourself look good. Another thing you can be sure of -- assuming you plan to stay on after the sale -- is that this buyer is going to be sizing you up as a manager. You are a very important part of what is being purchased. Take time to refresh yourself on the facts and figures you would be expected to have at your fingertips. If you have a good management information system, let the buyer know about it. Show him or her the flash sales and profit report that comes out 24 hours after the month's end. If you're proud of other members of the editorial or management team whom you've developed, give them a chance to show their stuff.

Make his job easier. Provide the prospect with a written profile of your company, key executives and an organization chart. Also supply media kits, sample issues and rate cards for each magazine. Offer statistics on the markets that you address, your competitors, and your subscriber and advertising bases. Give the buyer as much information as you can. This will help make his or her job of preparing an analysis of the potential acquisition -- and any memos that must be presented to the buyer's boss and/or external financing sources -- much easier.