Media Studies

In early 2006 the Daily Mail & General Trust (DMGT) group halted the sale process of its regional newspaper chain because, it said, the offers were too low. Some see the failure of that transaction as an illustration of a wider move by financial investors, away from consumer publishers who focus on the general public and towards specialist business and academic publishing companies.

This trend seems to have been borne out by much of the activity in 2006. This included a private equity consortium’s acquisition of Dutch publishing company VNU for €7.5bn (US$9.8bn), the subsequent proposed sale of VNU’s magazines division to 3i, Apax’s purchase of business-to-business publisher Incisive Media and an approach from Springer to acquire business and scientific, technical and medical (STM) publisher Informa.

These deals are also a reflection of the consolidation in business publishing in Europe in recent years, both among trade players and financial investors. In recent months, for example, specialist publisher Euromoney bought Metal Bulletin, which reports on news in the minerals industry, for £221m (US$429m). The offer squeezed out an earlier agreed deal between Metal Bulletin and anther trade buyer, Wilmington.

So, what’s the attraction of business-to-business assets compared with consumer publishing? “Academic books, scientific journals and so on are desirable because there is strong demand for this kind of specialist information and customers are willing to pay for databases,” says James Healey, a media strategy analyst at Ernst & Young.

The problem at consumer publishing companies is that there is massive pressure on advertising from the internet and most of those companies have already cut costs to the bone, argues Healey: “Companies like the UK’s Trinity Mirror group and their equivalents elsewhere in Europe are not that attractive to private equity because they are in a troubled market and there is not a lot of scope to cut costs.”

It is clear that many buyout houses think they can make good returns from business-to-business publishing. 3i is acquiring VNU’s magazine publishing arm from the private equity consortium that acquired VNU last year, which included Blackstone, Carlyle and KKR. The consortium has decided to sell off VNU’s smaller, magazine publishing arm and hold onto the larger database/market research part of the business.

This decision is understandable, given that many in the industry regard online subscription database services as one of the growth areas of publishing. In June last year, for instance, Candover acquired EurotaxGlass’s (ETG) for €464m from HM Capital. ETG is a pan-European provider of automotive data intelligence services. The company collects data on new car pricing, used car valuations and technical specifications, distilling it into analysis that is sold in 28 countries at every stage of the automotive chain. According to Candover, the attractions of the deal were a company based on valuable proprietary information, a subscription-based business with strong customer relationships and strong national brands.

Last September Apax announced its acquisition of Incisive Media, which is largely in business-to-business publishing, in a £199m take-private. This was essentially a bet on founder Tim Weller and his team’s ability to grow the business. Incisive’s titles include Investment Week, Legal Week, Risk and Your Mortgage.

Apax paid a 13% premium to Incisive’s trading price and said its aim was to invest in the company’s expanding portfolio of brands and develop its online and events business. Chief executive Weller said difficulties raising cash for acquisitions in the public markets had prompted him to accept a private equity offer as a way of getting Incisive to the next stage.

The Incisive deal is indicative of the consolidation pressures among small and mid-sized players in print media, says Richard Madden, a director at Close Brothers Corporate Finance: “Private equity is very good at backing good management teams, both existing teams and new ones, and Incisive will now have access to a lot more capital to deploy in acquisitions. Sometimes it can be a competitive disadvantage if you have to go to the public markets every time you want to make an acquisition.”

Like Apax, 3i is attracted to the business publishing sector. In December it announced an agreement to buy VNU’s magazine publishing operations, known as Business Media Europe (BME), in the Netherlands, UK, Belgium, Germany, Italy and Spain. The proposed sale of BME’s assets in France was still being discussed. BME focuses on the recruitment sector, as well as technology, business and finance, with more than 70 print titles including Accountancy Age, Computing and Management Team. It has the leading position in the print and online recruitment market in the Netherlands.

The private equity house said it already had a good track record of investments in classified ads in newspapers, yellow pages and online, and that the sector was at a point of change in which there was an opportunity to back “tomorrow’s winners”.

According to one buyout executive: “Even though VNU started as a magazine publisher, that part of the business became rather neglected over the years and so it could benefit from the new focus 3i brings to the titles, especially given 3i’s active management approach.”

Meanwhile, in the autumn the publishing group Springer, owned by Candover and Cinven, made an approach for Informa, the parent of STM publisher Taylor & Francis. Springer itself had been created in 2003 when the two buyout houses merged the German-based academic and scientific publisher BertelsmannSpringer with Dutch publisher Kluwer and French professional publisher MediMedia.

Informa described the move by Springer as “a highly preliminary approach” and said discussions were at an early stage. A merger of Springer with Informa, publisher of Lloyd’s List and organiser of a number of conferences, would create a business worth more than £4bn.

As well as private equity-backed companies, consolidation is also involving trade players. An example is Dutch-based professional publishing company Wolters Kluwer, which specialises in areas such as corporate and financial services, and tax. The company spent more than €400m on bolt-on acquisitions in Europe in the first half of 2006 to bolster its position. One acquisition was of Italy’s De Agostini, which helped Wolters Kluwer gain the top legal publishing position in that country.

Rating agency Standard & Poor’s (S&P) points out that Wolters Kluwer pushed its acquisition spend well above 2x its annual discretionary cash flow base in the first three quarters of 2006, in a bid to defend its existing competitive position. It points out that the size of target companies combined with the high cash flows of media companies makes debt the main source of acquisition finance.

The move away from consumer and newspaper publishing by financial investors is relatively recent, as historically private equity has made very good returns from consumer-focused print media investments, particularly regional newspapers and directories.

For example, UK regional newspaper consolidation was driven by private equity players such as KKR and Candover. Buyout houses were instrumental in the development of regional press players such as Midland Independent, Newsquest and Regional Independent Media. Private equity houses were able to pick up regional newspaper assets that were divested by larger groups and which had often not been particularly well run. The financial investors were able to generate good returns by replacing often lacklustre management teams with a more aggressive management approach that focused on cutting costs and generating cash.

One key factor in driving value in publishing these days is “must have” content – a trend which the subscription services of many specialist and business-to-business publishers cash in on.

David Stephens, an investment director at IBIS Capital, which specialises in development capital for media companies, says that business-to-business publishers have built up a community of people over time who share a particular interest: “This core group of people want information about developments in their sector and news about each other, as most of them know or know of each other.”

What these companies have been doing, he adds, is expanding their relationship with this core community of end users beyond traditional print media and into online media and events, such as conferences. “Many of these companies are now trying to replicate their content online or are creating a new web presence,” says Stephens.

The interest in business-to-business publishing is one that has been growing for several years now. Elms points out that in the early 2000s some investors realised that even though the publishing industry was going through a difficult period the earnings of business-to-business publishers were standing up pretty well. This led to a number of seemingly high-priced deals. Among the more aggressive acquirers were companies like United Business Media, as well as financial investors like Candover and Cinven in Continental Europe, who acquired BertelsmannSpringer and other assets.

One important deal was Vivendi Universal’s selling off its healthcare and business publishing arm in 2002 to Carlyle, Cinven and Apax for €1.6bn. The consortium has been selling off these assets piecemeal in the last coupe of years and making very good returns.

One of the factors operating against further consolidation in the print media sector is the high valuations of many media companies. According to S&P, media acquisitions are usually priced at 10x EBITDA or more because of revenue growth expectations and the fact that there is a good conversion of profits into cash.

Despite high valuations, many in the market believe consolidation in print media will continue, because there are significant synergies to be gained. 3i will be seeking synergies from its acquisition of VNU’s business publishing arm, as will Apax at Incisive, says one private equity executive. “Each has a different portfolio with a different focus but both will want to grow through acquisitions. For Apax it’s a buy-and-build approach and will probably be something similar at 3i – a bit like how the UK regional press was created by private equity investors a few years back.”


While there has been much speculation about the declining attraction of consumer publishing for investors, how much of the talk about the demise of this sector is justified?

Richard Madden of Close Brothers argues that the withdrawal from sale by DMGT of Northcliffe Newspapers Group, their regional newspapers division, marked a shift in attitudes by financial investors. “For the first time private equity was moving away from the regional press and that was because investors saw that the newspapers’ relationship with their end users was very vulnerable.”

This vulnerability is being reflected in declining circulations and the migration of the core classified advert markets of recruitment, auto and property to online sites. Because publishing companies have already taken out a lot of the costs there is not the same opportunity for private equity investors to generate value, he says, making the consumer publishing sector a less attractive proposition.

According to Richard Madden, the move is away from consumer publications and towards businesses that are market leaders in their area of business information: “If you look at consumer magazines, circulation is down, which contributes to less advertising and lower pagination. It’s a downward spiral.”

He adds that readers of consumer magazines are increasingly moving to online providers of content and other sources. He contrasts this less committed customer base to that in business publishing where the end users feel they genuinely need the information the publisher is providing.

David Elms, head of media in corporate finance at KPMG, says that another issue for consumer publications is that they must continually keep re-generating content, whilst a specialist publisher, for example, can bring out a reference book and generate revenue for a considerable period of time.

In spite of the trend towards business publishing and the growing competition with the internet that print media companies face, some believe that the claims of consumer publishing decline have been exaggerated.

According to S&P, while regional newspapers have been hit by the loss of classified ads, revenue falls should not be exaggerated and traditional print media still accounts for a third of total advertising in major European markets and does not lag far behind TV, the largest market. Year-on-year falls in newspaper display and classified have been limited to low-to-mid single digits so far, says S&P, adding that online advertising is more likely to affect radio in the short term.

David Stephens of IBIS Capital says that it is difficult to generalise about consumer publishing: “At the end of the day, if you can generate content that attracts a certain demographic and that demographic is attractive to advertisers then you have a proposition that will succeed. Problems emerge if the content ceases to retain its intrinsic interest and/or if that base of focuses on alternative channels of communication with that demographic.”

It is also true that consumer publishing companies have been investing significantly in online activities and that they often have a strong brand that can be used to attract both advertisers and users online.

DMGT, for example, owners of the UK Daily Mail, has expanded into conferences and events and online. It reported advertising down 2% last year but expected to post a modest gain overall, compared with the previous year, thanks to growth in online advertising, digital activities and free newspapers.

Olivier Woolf, head of media at PricerwaterhouseCoopers, points out that even though the sale of Northcliffe Newspaper Group was called off by DMGT, it was private equity houses who were lining up to buy the company. “It was just the fact that DMGT wanted a higher price that led them to withdrawing it,” says Woolf. He adds: “Private equity is often interested in more traditional print media companies but not all the deals have come off.”

Woolf says that even though the lack of a growth story could put off some financial investors, these more traditional companies are still highly cash generative. He also notes that activity in the consumer publishing sector generally has been rather subdued, not just among private equity investors.

“If you look at the deals in the past that have involved private equity, such as the regional press, yellow pages and directories, those sectors have been very successful for buyout houses,” he says: “The more difficult question going forward is whether that will continue to be the case and I think it will, to a large extent, because these are publishing assets that are not going to disappear overnight and have some years left.”

The recently announced sale of Trinity Mirror’s sports and regional titles does suggest that buyout houses are still interested in consumer publishing, as there is reported to have been both trade and private equity interest in the assets. The company announced in December that it was seeking to sell its sports newspaper and about 100 regional and local newspapers in the UK. The sale could yield up to £650m.