City and Regional Mags Still a Seller’s Market
M&A adviser offers an update on the regional market as well as insights for its publishers.May 2007 By Matt Steinmetz
What is the current M&A climate of the city and regional market?
Kim Mac Leod: [It] is still strong and still a seller’s market for a couple of reasons. First, the relatively low cost of money (at least for the time being) has made cash available to buyers, both strategic and financial, at better terms. … Second, there is more demand than supply right now. There are numbers of buyers—particularly private equity-backed buyers who need to put their investors’ money to work—who have recognized over the past seven to eight years that media is a good business in which to invest, and have been actively buying city and regional magazines.
What should a potential seller look for in an adviser?
Mac Leod: Have they have done transactions with … and do they understand the metrics of a city or regional publication and how it differs dramatically from a national publication? Do they understand how to position it … to the various buyers—both strategic and financial—that will fully realize the value that the seller will get and, if needed, help the seller get ready to sell (fixing problems ahead of time), so that hiccups don’t occur once the company is on the market that can cause buyers to walk away? This happens more often than you realize, and a good adviser should be able to see these flaws ahead of time.
Does the adviser know what a company is likely to bring on the market …? Not all magazines have the same valuation, and a good adviser should know what those value drivers are and what the impact will be to the market for the seller’s particular business. Does the adviser have the contacts—both financial and strategic—to bring buyers to the table …? Have they worked with auctions, or have they only done small, one-off types of sales? The magazine, market and seller expectations will dictate the type of sale process, and a good adviser should know the right one to select. …
For publishers interested in acquiring competitors, what are some factors to keep in mind?
Mac Leod: … look at how the two businesses overlap and are distinct in each of the three areas—advertising, circulation, editorial—and determine if there is enough gain in additional market share … to make the price worth it. … If the competitor is distinct in one or more areas, the buyer should determine if those areas can be leveraged to the buyer’s current business, and if so, analyze what the gain would be. …
For an owner whose online presence is strong, but is not yet generating significant revenue, how should they position the company to maximize its value?
Mac Leod: The Web is an increasingly important component of a regional magazine’s value. Make sure the company is really utilizing the characteristics of the Web—immediacy of information, search, community. Augment what’s in print, don’t just reformat it. And don’t give away advertising online as added value for a print schedule. Conversion to paid will be difficult, and the online component will never realize its full potential. Measure results with a third-party source. The more statistics a company can show about the increasing traffic, viewers, etc., that use the site, the better. PE