M&A Activity Shows Publishers Looking to Diversify
"The goal is to find some way to grow the top line," O'Connor says. "All [publishers] are looking for how to transition their business from publishing to information, and to deliver information however the customer wants it to be delivered."
The other side of the current M&A coin is, of course, divestiture. "Some of these are classic print businesses being sold to various parties for very good prices on the sell side," O'Connor says, citing the recent sell-off of properties by Reed Business Information.
What Ed Fitzelle, managing director of Whitestone Commnications Inc., calls "prepackaged bankruptcies" are another manifestation of this trend. In the case of media companies such as Penton, Questex and Cygnus, "Equity sponsors have lost money, but gotten out from under mountains of debt," he says. "The new ownership includes former lenders, whose hope is to recoup some of their losses in the future. Whether they are successful will depend on timing and the speed of the overall recovery."
Both O'Connor and Fitzelle find clues to the industry's future in the type of businesses doing the buying.
"Reed and Nielson have unloaded numerous properties, that were once industry darlings, to entrepreneurs," Fitzelle says. "The willingness of these entrepreneurs to commit to the markets served by these publications is a very healthy development. Publishing, at its heart, is a mom-and-pop enterprise (think of the original Reader's Digest or any of the great newspaper families, or any of the major book publishers in their early stages) and focused, tightly run businesses, which will grow by recognizing opportunities and taking limited risks, is the wave of the future and a healthy development."
O'Connor seems to agree. "We do think people who buy these kind of assets, who really know these industries, can do a lot more with them because they are very hands-on," he says. "They can do better than a larger entity sometimes that is very diverse."