Magazine titles are not commodities. The price for which they will sell can vary spectacularly from one day to the next and depends on a whole host of factors. Presentation, timing and nerve are needed to see the process through to a successful conclusion. Piers Russell-Cobb looks at what it takes to close a deal.
Selling a magazine is like climbing a mountain. You know where you are and you can see the peak you want to reach, but you have no idea what obstacles might lie in the way. You glimpse a ‘top’ just ahead and think you have almost reached the summit, but in fact you have only just reached a plateau and there’s a sheer rock face straight ahead.
You, as the seller, are likely to be feeling quite emotional about the journey, and your companion, the chosen buyer, may well lack your confidence that the summit will be as attractive as you have described it.
It’s a complicated business, but there is one key factor on your side: it can be great fun! As Peter Drucker, the celebrated father of modern management, put it: "I will tell you a secret: deal-making beats working. Deal-making is exciting and fun, and working is grubby. Running anything is primarily an enormous amount of grubby details, while deal-making is romantic, sexy."
What makes a title a good prospect for sale?
Magazine publishers are sentimental; they hang on to titles that every entrepreneurial bone in their body tells them they should get rid of. When they finally decide to sell, it is often because of personal reasons, such as retirement, ill health, estate planning or family pressure. Alternatively, it might be because of growing financial difficulties or strategic disadvantages that they find it hard to overcome as a standalone business. However, going cap in hand to buyers is not the way to achieve the best possible price.
The best prospects for a sale are usually the very titles that multi title publishers don’t want to sell – those with a real future. An acquirer will pay a premium for a believable and deliverable story, and will discount the wavering or incredible. The fanciest prices are paid for titles that have solid net profit percentages of 15% or more; have an achievable web strategy; and have demonstrable growth in performance and profits. Acquirers will be suspicious of non-credible reasons to sell, such as the 30-year-old who says he wants to retire.
Buyers want to understand and appreciate the online relevance of the title they are about to acquire. Online potential is just that, it does not have to have been fulfilled. In fact, it is often more saleable when it is not yet exploited. It is essential that the online strategy is in place even if it’s not played out to its fullest extent. This will also extend the range of buyers, as non traditional magazine buyers like web entrepreneurs can adapt intellectual property to the delivery that they have made their fortunes from.
Large corporates tend to divest themselves of portfolios of titles both to focus strategy and in order to enhance earnings and shareholder value. Sentimentalists looked on in astonishment when Sir Crispin Davis announced he was preparing to sell what many regarded as the heritage of Reed Business including the Estates Gazette, New Scientist and Farmers Weekly.
Before planning to sell a title, there are four basic questions one should be able to answer:
1. What is the business? (Who is your audience and why should buyers be interested in what you are proposing to offer? Do they need your title? Where do you sit in the competitive market place?)
2. Is your title as profitable as it can be or can you credibly show that it will be more so?
3. What is the potential and how can an acquirer achieve it?
4. Why are you proposing to sell?
|Common reasons to sell
||Common reasons to buy
* Retirement, poor health, family or shareholder pressure, boredom
* Sorting out assets for the future generations
* Assets need further investment that you do not want to risk
* Perplexity as to what the ‘web strategy’ will produce
* Pressure from banks or creditors
* Lack of a clear line of succession or other staff issues
* Recognition that economies of scale will make business better
* Market conditions which produce offers from players that you can’t refuse
* Ability to enhance profits by revenue enhancement or cost saving through easy integration into organisation (eg. benefits of paper buying, distribution)
* Cultural fit of target
* Ability to piggy back profitably off subscribers or expand offerings
* Wish to expand portfolio for licensing or export or crossing border to new market
* Obtain better growth opportunities
* Enhance competitive strengths or reduce weaknesses
* Acquire technology (eg. customised semantic web tools that can be integrated across platform of titles)
* Prevent competitors from nibbling or entering your core markets
* Best use of surplus capital or management capacity
* Helps to retain staff in an organisation with wider prospects
* Diversification minimising risk
Essentially, there are three stages of the sales process: internal, external and making the deal happen.
Clearing the decks
Many magazine publishers do not bother to groom their business for sale, but this can significantly affect the price. Sellers need to confront all the issues that will give negative signals in discussion with buyers: unsettled litigation, staff issues, out of date accounts; unsigned contracts with key business suppliers or staff; not knowing whether you want to sell the assets or the titles. However, as one seasoned buyer told me, "I urge caution over grooming or putting on a disguise. Tidying up is good, but buyers take flight when they see benefits of the implementation of short term fixes."
There are times when it is an advantage to bring on board senior employees, shareholders and key suppliers. You must recognise that all these categories have an interest in the sale though their objectives may conflict. Most sellers do not involve the managers of the business in the process and are surprised when they find the secret is out. It usually gets out because the bright people they employ draw conclusions as to the use of information that has never previously been requested.
Role of the broker
Among the skills of a broker is to make a deal simple, comprehensible and achievable. They have seen hundreds of deals and, more importantly, witnessed the psychology of parties - they should know what ingredient is needed when. Their knowledge cannot be distilled into a manual. Their job is to support the vendor in having the confidence to go through with what can be an intrusive and exhausting process. When there are single titles to be sold, a simple grid setting out assumptions, trading results and projections and direct costs for the previous, current and following years, will tell a prospective acquirer everything they need to know without any complications regarding allocation of overheads.
When you have got down everything surrounding the titles you want to sell, think about timing, because there are clearly times where businesses are more valuable than other times. And remember, sell when you can, not when you want to.
There were the glory days in the year 2000 when venture capitalists, groaning under the weight of the fortunes they managed, sank tens of millions of pounds into businesses – not just internet start-ups, but also mature businesses they felt could gravitate easily to the web. I was surprised that more intellectual property owners didn’t sell out at fabulous multiples when the bankers came calling. There are good examples of those who did, and those who did not. But now it is a buyer’s market and will be I reckon for two years.
However there are two related factors that are driving up the multiples at which intellectual properties are changing hands, and these are profit growth and internet strategy. It is always better to be able to prove your case than to present figures that show that, by some miracle in the forthcoming months, profits will be increasing. It may be better to delay a sale until you can prove the trading records inherent in your forecast.
It is useful to begin selling with realistic expectations for the rough price range that will be acceptable. To get to these multiples, we refer to comparables on the public markets and apply a discount of about one third for a private company. And then we look at the prices fetched when comparable businesses have been sold.
Clearly, the current trends of advertising multiples and internet factors will affect values as will solidity of income streams. But, over the last few years, we have seen magazines change hands at 5-12 times earnings. Titles with 95% subscription renewals are clearly more valuable by their nature than controlled circulation titles. However, it is unusual to set a sales price as we have always held that it is up to the buyer to set the price, because beauty is in the eye of the beholder.
The identity of the seller will affect prices offered for assets. When you go into the market, the prospective acquirers have an impression of the vending organisation and their strengths and weaknesses. Most times, acquiring publishers believe that their organisations are better than the vendor’s and can improve profits. But buyers beware! I was engaged by Peter Field when he was running Risk to sell a newsletter. The people I talked to all had the highest regard for Peter and thought him a most efficient publisher, so they added costs rather than profit to the title’s P&L, on the basis that whatever they did would be more expensive than Risk.
Finding potential buyers
Once you have gathered your entire financial information together ready for presentation in its simplest form, it is now time to go to the agreed list of buyers. The construction of this list is very much a cooperative process; no broker can know your industry better than you. At the same time, it is unlikely that you will have met as many prospective buyers as they will have. You should search for that list that you will have kept over the years of the suitors who have come to court - they may not be in the market now but they will give an idea as to whom your business has been attractive in the past. Other sources for leads include internal management and high quality databases like those run by Outsell or merger markets. Trade associations like the PPA and FIPP are also useful, particularly for rounding up any parties you may have forgotten.
A seller should understand the buyer’s position. Trade buyers won’t need industry information; they will be looking for synergies and other operational advantages. Financial buyers will demand detailed numbers, which they will scrutinise and interrogate sellers on.
Beware, though, because there are lots of people who like to think and talk as though they are deal makers who do not, in fact, have the experience or access to funds. While buyers are used to signing non-disclosure agreements, some of them can translate the information they get from you into ways of managing their own businesses, your competition, better. Try to stay clear of these players until the very final stages.
We get to the deal
It is important to realise that while the best price is important, it is not, as Warren Buffet says, "the most critical aspect of the sale". Like any deal, there are trade-offs between the most money and the best buyer. I once represented a seller who insisted that the BBC was the only party to whom they were prepared to sell - imagine what discount there would have been in the price they offered if the BBC had known that! Buyers forget that some sellers sometimes want organisations which can offer their staff good career prospects or where they feel good selling to someone with a reputation for running a visionary organisation.
Sellers always hope there will be more than one serious buyer. Otherwise there are considerable efforts to maintain some price tension in the process.
In How to Get Rich, Felix Dennis suggests you should never go on holiday when a deal is going down. The principal needs to be around, not least to give guidance to their advisors.
Once you have reached written heads of agreement, the acquirer’s lawyers draw up a purchase and sale agreement over which there will be much legal toing and froing. Brokers should help you manage the legal process.
Selling is a process more art than science. It relies on the way people feel about price, timing and potential. It needs management to keep on track. The curtain goes down on the show when the vendor and the purchaser meet with their advisers and lawyers in the sometimes nightmare negotiation of the terms of the contract. Heed Felix’s advice: "Listening is the most powerful weapon after self belief and the persistence you can bring as an entrepreneur."
Prepare the internal, truthfully present to the external and you and the acquirer can look at the fabulous view from the summit - even if you will be looking in different directions.