Architect of EMAP and Incisive deals pays the price
The departure of Stephen Grabiner from APAX is hardly a surprise. Bright, able and very ambitious, notwithstanding when your job is to make money from media investments and you lose most of it the axe is bound to fall. Apax bought both Incisive Media and EMAP (the latter in partnership with GMG). Both businesses, although horribly damaged by the economy and an overdependence on print, remain profitable but neither have been able to climb the mountain of debt that was used to fund their purchase.
Emap is arguably stronger than Incisive. It has a much bigger events business, is the more profitable and although the value of shareholder equity has been largely written off, has not had to give control to the banks.
With Carolyn McCall leaving GMG to join Easyjet, Grabiner exiting APAX there is hardly anyone left who can remember what the rationale for these deals was. Emap was supposed to be geting a cash injection to fund acquisistions. With large losses at GMG and no Grabiner at APAX how likely is that to happen?
To grow out of the problem requires great bravery. Will we see Emap and Incisive reviewing their assets, closing some and selling others? Or will both businesses struggle manfully under the debt but never really get anywhere.
GMG are reported to be prepared in principle to inject more money into EMAP. EMAP is at real risk of breaching its banking covenants so although GMG are signalling their intent to stump up cash is for acquisitions, more cash may be needed to prop up the balance sheet and avoid an expensive renogotiation of banking agreements (which GMG are reported to have rejected as an option.) Elswhere there have been rumours that GMG will sell recently acquired PAid Content to raise cash. SO GMG has yet to make clear what ots own future strategy looks like and that means it is unlikely there will be any quick decisions about the future funding of EMAP. Potentially that is serious as in todays market delay in strategy clarity brings the day of reckoning closer. So there is a big difference between an "in principle" offer of cash and any cash being available. What EMAP has yet to demonstrate is that it has a compelling plan to build value in its business. It has and continues to take costs out. It has flip flopped on paid content strategy and there is little evidence that its current pay wall strategy is radical enough or innovative enough to crack the problem.
GMG are committed to paying down debt before taking any profits and will have to take a very long view. They have yet to right off their equity stake in EMAP (as APAX has already done) but they will surely have to.
Emap could consider selling off assets and hunkering around construction where they have a good data business and there may well be interestingfuture acquisition opportunities, and fashion, where they own WGSN and a selection of trade shows. This would make a manageable platform around which to build. Be brave, be brave.
We have known for a long time that business media companies are in trouble. But it is only just now that the chickens are coming home to roost. The failed sale of RBI will be seen as a watershed moment, after which the reality of the horrors we face began to be faced up to.
Investors in Emap have written down the value of their investment. Investors in Incisive (which overlap) are coming to terms with the news that their equity is all but worthless and the banks will end up owning the business.
William Reed has culled at at least 20% of its headcount. Centaur has been doing the same as it struggles on with reduced profits and little cash (but luckily for them little debt) Most other business media companies are reducing their headcount progressively, chasing the revenue downwards and hoping that things will get better.
Every week sees more magazine closures. There is no end in sight to the ad gloom. Recruitment has gone for ever and display is mortally wounded.
The hope in online is often countered by the grim reality of poor ad revenues there too. Emap announced last week that it is putting much of its content behind a subs wall, having discovered that giving it all away is hurting paid copy sales and the extra ad revenue doesn't cover the gap. This flip flop in strategy won't work not least until they stop worrying about print cannibalisation
Everywhere we look the strategies are defensive. Where is the new model? Where is the creativity that will turn the old magazine publishing businesses into growth businesses for the future? Yes there are pockets of interesting things happening in all the business media enterprises, but none of them have a whole business vision.
Meanwhile in idle tittle tattle I hear a rumour that Les Kelly, the Wilmington exec who presided over the closure then sale of Press Gazette is leaving the business.
Sorry for lack of posts lately. As sometimes happens in the real world, I have been busy. The pain is not over yet. Emap Inform has announced more reducndancies even though the business continues to do well (according to its CEO). The MD of Inform, Simon Middleboe, says the changes are about becoming a multiplatform business and building paid content. Some might think that sounds like a strategy hooked onto the back of inevitable cut backs as the print recession gets worse.
This all comes on the back of Apax writing down the value of their investment in Emap. Apax of course have already lost their shirt on Incisive Media.
The Independent reported at the weekend that both Incisive Media and Emap, the Apax owned debt laden companies, have improved their profits. As both companies are private, we cannot see the detailed results, but we must surely assume that this is driven by cost savings. Apax will invest a further £20m in Incisive to retain control if they go ahead with a proposed debt for equity swap with lender RBS.
Incisive Media has previously published its results as recommended by the Walker Report. It is late doing so this year. It would look cynical for them not to honour that commitment just because times are tough.
Emap Inform are feeling the pinch. All their mags are going A4 and are to be printed back to back to gain production efficiencies. Some titles will have to change their publication dates to fit.
Erm. And that's it apparently. Just cost savings. No new thinking - at least none thats been annoucned. If the revenue falls some more what next? A5?
The problem that the debt leveraged comnpanies have is that they are having to do everything to save cash regardless of the publishing thinking. You can't blame them for that but if the new model is this:
Less editorial written by fewer journalists, published in magazines that all look the same regardless of what readers want or admire, with fewer pages on crappier paper with no job advertising,
then I fear for the end may come sooner than we feared. There are lots of things that could be done. One commentator rattles on about this here. It may or may not be right, but least its more than just cutting costs.
All of the business media publishers are facing unprecedented challenges. The economic downturn, long term decline in magazine profitability, a threat to profits from events, the challenge of making money from the web and so on.
Publishers long since worked out that there was no competitive advantage in running their own circulation management systems or print plants. Exhibition organisers long since contracted out their on site registration. But why has nobody thought of eliminating permanent costs from other areas of hygiene activity?
One of the benefits of APax owning both Incisive and Emap was the merger synergies. They never happened as crunching the two businesses together would have required a refinancing of the whole deal - and you can understand why that didn't happen. But what is to stop these two businesses sharing back office overhead in finance. Locate the credit cotnrol desks for both businesses in a single location where labour is cheaper than in central London, with one group management providing services to both companies on a SLA.
If it could done for these two companies, why not invite RBI, UBM and Informa to join the party? Each party would own an equity stake in the service company which would be run on a cost plu basis, with any profits returned to the shareholders. Make an agrement to protect the confidetiality of data. Consider inviting smaller publishers to enjoy the benefits of the solution for a fee. Cost savings and a profit share too!
Business media comapnies have worked together before. Tower, the circ bureau grew its business in the nineties on the back of a concord agreement with a cadre of blue chip publishers. The Excel Exhibition Centre was built with funds secured from RBI Emap and UBM amongst others.
How big are the savings? Well lets imnagine that back office finance costs 5% of turnover. Lets pretend we could save 20% of that. If we could process £1b of turonver thats a saving of £10m a year or put another way - on a 10% average profit margin, the equivalent of offsetting £100m of revenue loss. Mmmm.
What a year it has been. We began with Emap being sold in what turned out to be the last major business media deal before the crunch. Reed announced in February the sale of RBI and then spent all year not getting it done. All the public business media companies saw their share prices collapse. No business media enterprise was exempt from redundancies. Magazine titles closed or merged. The tech sector led the way with Computing merging with IT Week. In the US PC Magazine and Techworld switched off their print editions all together to concentrate on online only.
Senior managers were ousted from Centaur, United Business Media, Wilmington and EMAP to name but a few.
What are we to expect in 2009. Is this the beginning of the end, or just the end of the beginning of the end? Can we expect a renaissance in the business media zeitgeist? It was just five years ago that city analysts were spouting the mantra that the future of media WAS business media. It was on the back of this optimism that Centaur floated at a valuation of £140m. Today the same analysts and city brokers value the same business at less than £50m.
This industry demise was not a bubble that burst, rather one that deflated rather quickly making farting and popping noises as it chaotically whizzed around the room look for somewhere to land in a flacid heap.
The tragedy is that although the crisis has been made worse by the credit crunch, so much of what has happened was avoidable. The impending crisis has been visible for a long time. I started this blog back in 2006, way before the credit crunch, and it was clear then that our model was doing its dying.
But we are where we are and it is time to turn our attention first, to what we think might happen in 2009 and then to consider what we must all do to rebuild our industry.
There will be some who say that this is all an exaggeration, that the fundamentals are good. Experienced management teams are in place, the business media has led the way in developing events and data business and looking at work flow solutions and migrating to the web. Let me remind you of the view of the CEO at Hanley Wood when he accused us back in February of "underperformance, cowardice, technophobia, inferiority, complacency, coziness, stinginess, cluelessness, disorganization and dullness."
The management teams have too often been in the same place for too long. They are mostly magazine publishers trying to adapt to the new world. Their staff are frustrated and frightened. Lemmings led by donkeys as one rather harsh observer of our industry put it to me the other day. Yet we have some hugely able leaders at the top of b2b, Jones at RBI, Heseltine at Haymarket, Gilbertson at EMAP, Levin at UBM, Weller at Incisive, Brady at Wilmington to name but a few. There is hope. There really is.
It is too easy to blame all this on the crunch or on a change in City sentiment but its more fundamental than that. Reed Elsevier worked out there was no future in the old business publishing model and tried to ditch it. EMAP lost its way and broke itself up into bits, UBM effectively fired all its global CEOs (except in Asia I think), Stirling Media Group got saved by Progressive Media unable to sustain an independent existence any longer, Centaur got rid of some its longest serving and most loyal senior executives. Haymarket said goodbye to Nick Stimpson and others. Incisive Media, perhaps the success story of the last five years, announced layoffs and ousted Rory Brown amongst others.
The tales of reflex culling are too numerous to list. But what next? When the culling is over, when the redundancies are done, when the budgets have been slashed, the overheads expunged, what if the revenue keeps falling?
A parenting guru of my acquaintance told me that it was always wrong to smack an errant child. His reason? If it doesn't work, which it often doesn't, you are left with only two choices. Smack the child harder or think of another strategy. He argued, why not deploy the other strategy, the one you will have to get to when you realise that beating your child senseless will not change his behaviour (unless you want him cowered and snivelling), before starting on the smacking.
We have been smacking the arse of business media and our businesses all year. Many of us haven't finished yet. There will be more pain to come in 2009. But let us take the advice of my parenting guru and start to deploy the strategy that will save us from nurturing a cowering, frightened and clueless industry.
As you can probably tell - I am not having a good day.
Meanwhile Centaur reports its revenues have slumped and its share price slumps in harmony to an all time low of 46p - less than half its float price five years ago.
Everybody is now rushing around like headless chickens trying to make it right. But why, we are entitled to ask as shareholders and employees, has it taken so long to wake up and smell the coffee. I have been accused by some correspondents and readers of this blog of being a pessimist. Actually I am not. It just makes me mad as hell that we have left this all so late. We loyal readers of BMB, have seen it coming for two years. But it is not too late. Radical and innovative steps will still pay off. But please don't do the obvious. There was a story yesterday (forgive me I have lost the link) saying that Conde Naste were cutting digital costs to defend print. Duh!
If anybody in B2B thinks thats a good idea send out for the club revolver and do the honourable thing.
The old EMAP b2b business has announced that its Inform group is to abandon paid infomation (subs) from its web sites. I think we can assume that the revenue is modest to say the least. No one is giving up meaningful revenues in the current climate.
David Gilbertson, CEO argues that he has to give his digital advertisers what they want. Mmm. I suspect this is a bunch of not wildly succesful sites where another throw of the dice on the ad model is a hope not a promise. We all know that buulding meaningful ad revenue on line is tough. Some have succeeded - but not many. Does anybody out there know if this is real strategy from EMAP, or is it just that the information sales model isn't working on some sites so they think they had better try the ad model?
The old EMAP B2B business, now co owned by Apax and GMG is feeling the effects of a new broom sweeping clean. CEO Gilbertson has sacked 8 publishers according to this story on Brand Republic.
That saves a useful £1m or so and clears out a good chunk of the layer of management that Gilbertson might have thought a barrier to change. Theres more to come I'll bet.
The Times has been reporting that private equity is circling Informa. As a result the share price jumped. The speculation is that Informa could be merged with UBM. No doubt somone in hedge funds made some money today but an interesting trend is developing. Emap Business is now in private equity hands, so is TES, so is Incisive, so will be Reed Business Information. Now we are told that the same could happen for UBM and Informa. What is it that private equity investors see in business media companies that the City doesn't in the same companies on the public market?
Two theories. Either the PEs are mad or they see lumbering companies with heavy management costs and too little innovation. Running a PE backed company is a very focussed job. The CEO and the management know they have to drive shareholder value in a predicatable time period (3 to 7 years). In a public company most executives are working to not be fired, not take too many risks, not make a mistake, never see the consequences of their mistakes. PE is oft criticised for their slash and burn approach, but there are few media PE deals that have gone horribly wrong in business media.
Get the right management (not necesarily the incumbent) and there is still value to be extracted. Incumbent management take note, as the man from Hanley Wood said, you risk as being, perceived, perhaps rightly, as not competent to take our industry forward.
EMAP Business, under new owners, GMG and APAX have begun their remodelling by re organising into four divisions. They all have posh names, but they mean Magazines, Exhibitions, Conferences and Data.
What about web? I know they have some cool web data properties in fashion, but does this mean that all the mag websites are in data, or that the magazines division is also running web? Either way, outside of the data driven businesses its hard see where the focus on web publishing is.
The Guardian quotes CEO Gilbertson as saying,
"These changes are designed to aggregate our strengths so we are the best at what we do in every format. Each division will develop its own digital growth strategy, and we will invest in the technology and training to support that," said Gilbertson.
Getting magazine publishers to develop their own web strategy is like asking a turkey to pluck its own feathers and then gut itself. Its very hard to do, hurts quite a lot and you keep thinking that a pile of feathers, your innards all over the floor and a bald body is not very attractive. Apologies for the daft analogy - but you know what I mean.
Press Gazette conducts an analysis of UBMs results here. Print advertising is now in terminal decline, down 10% this year. This blog has been warning of the death of print for nearly two years and suddenly the combination of a shift in advertiser behaviour, the impact of several years of cost cutting on editorial quality, the impact of the Internet and the economic squeeze has tipped magazine publishers into near meltdown.
Lets summarise where we have got to. EMAP, one of the biggest and most successful business media companies has been sold off and has yet to emerge with a transparent strategy. Reed Elsevier, the sleeping giant of business media, has announced the sell off of all its business magazines. UBM, containing the remnants of the once great Miller Freeman and the darling of the eighties in business media, Morgan Grampian, is focussed on "data" and "events", Centaur trades on a share price 20% below is float value four years ago, has fired (made redundant) many of its most senior managers and has not demonstrated underlying revenue growth for at least three years., Nexus - once the fastest growing business media company in the UK has sold all but a handful of its magazines to concentrate on digital development.
Watch out for more magazine closures, falling enterprise values of magazine dependent companies, swathes of redundancies amongst magazine sales staff and journalists. The era of the business magazine began 150 years ago. Its all but over.
The appointment of Informa founder David Gilbertson to the role of EMAP Business CEO must have come as a bitter blow to the incumbent, Derek Carter. He must have mused that when GMG/APAX decided not to proceed with the merger of Incisive Media and EMAP, that his position was secure - at least for a while.
There activity in the headhunting world and it was an open secret that there was a process going on to appoint the CEO, but Carter must have assumed he was a certainty. Gilbertson is a a mature and experienced exec, turing Informa into one of the worlds leading business media houses. Nevertheless this is a challeng of a different kind. EMAP execs don't take kindly to outsiders and don't like being told what to do. It will be sporty.
It is being reported that the credit crunch has scuppered, at least temporarily the Apax backed merger of Emap Business and Incisive Media. To merge the two businesses would require refinancing debt already on Incisives balance sheet - and the credit crunch means that would be on less favourable terms than the deal currently in place. Also, the new deal would require more equity and less debt than previously thought as the banks play very cautiously in the new "sub prime" world.
In practical terms this means that Incisive and Emap will operate seperately - at least for the forseeable future. Of course the deal to acquire Emap is not closed and Apax still have to place all that debt requirement. I have no doubt they will be confident - but what happens if they can't?
I know this happened a while ago, but it can hardly pass without comment. It does seem extraordinary that the management of a business with the money and resources of EMAP and its extraordinary brands can think of nothing better as a strategy than flogging it all off.
Still, a good price was achieved for shareholders I suppose. It does appear though that APAX have been good as their word in backing their buy and build strategy around Incisive Media. On the assumption that EMAP Business becomes an integrated part of the Incisive operation, Wellers empire is now one of the biggest B2B groups in the world. This will be a substantial test of Wellers management. He has no experience of runnning an enterprise of this size and will need a strong second tier management team.
And on a final note, just because its big doesn't mean there is any point to it. I would love to hear a clear strategy description for the new enlarged business - but now Incisive is a private business I suspect we won't.
Business to business commentary for a 21st century media world. Analysis of business magazines and business media, the impact of search, the web and the digital economy.
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