Months of speculation over the future of Australia’s largest magazine publisher were put to bed last month as German media giant Bauer acquired ACP for a rumoured price of more than $500 million. Not only is it a windfall for ACP and its beleaguered private equity owners, CVC, but it could also be a shot in the arm for the sector as a whole. Analysts and industry insiders have largely viewed the half a billion dollar price tag – up to seven times earnings – as a healthy sum for the company and a sign of confidence in magazines generally.
ACP chief executive Matthew Stanton said: “Being part of Bauer Media provides ACP with a positive and clear future, under an owner who is focused on magazines and who will support investment and growth in our business.”
ACP is part of Nine Entertainment Co (NEC), owner of Nine Network. The publishing arm has been on the block all year, according to reports in the Australian Financial Review, which has followed the woes of NEC with typically dogged determination throughout 2012. If the rumoured pricetag is correct, it still represents a deep discount on the asking price being thrown around earlier this year; in February, the AFR was reporting that CVC wanted $800 million for ACP.
How fast things change. Now $500 million is seen as a generous valuation.
Suppliers are also breathing sighs of relief. The boss of one paper manufacturer told ProPrint it was “an incredibly positive outcome for ACP”. He admitted that up until now “a number of suppliers had been getting worried about ACP”.
The change sees ownership of ACP shift from private equity to a family-owned firm. Private equity’s track record in the print media sector has been sketchy at best. Blue Star and Geon have both suffered from the same challenges at ACP – owners who borrowed big to buy a business then struggled to service this debt as volumes and margins shrunk.
Meanwhile, family firms have fared decidedly better. The paper CEO pointed to IPMG, owned by the Hannan family, and Franklin Web, owned by second-generation printer Phil Taylor, as examples of the best performers among his customers.
Publishing empire
The €2 billion Bauer empire dates back to 1875, and the great-great grandfather of present owner Yvonne Bauer. This fifth-generation publishing house has a stable of 400 magazines, with 8,700 staff in 15 countries, not including the titles that will be added from ACP.
On announcing the acquisition, Yvonne Bauer said: “We are delighted to welcome ACP as a member of the Bauer Media Group. ACP fits our strategy of developing the Bauer Media Group globally. We believe in print, and ACP’s strong brands in Australia and New Zealand are perfect platforms to expand into digital areas.”
The Bauers are magazine people, but they are business people first and foremost and this is not a deal borne out of some sort of touchy-feely affection for print. Colin Morrison, the former chief executive of ACP, told ProPrint: “They are, of course, long-term owners but they are still very driven by driving costs down and achieving continual profit growth. They are not at all sentimental in that sense.
“They are very manufacturing focused and will drive for all possible efficiencies and cost savings. So printers can expect them to be a tough customer, but a loyal one,” said Morrison, who also writes a media blog at flashesandflames.com.
“They are, after all, committed to print almost more than any other magazine publisher. They will not quickly close titles – and don’t expect them to sell any, either – so, in the current era, that might make them the best customer for the print industry.”
The printer with the most to gain is PMP, which renewed its contract with ACP in May. The deal, worth many millions in print revenues, is unaffected by the Bauer deal. Whereas in some acquisitions, the deal only includes the assets – which in this case would be ACP’s magazine brands – here the Bauers have acquired the business. One industry source said he expected that the lucrative licensing deal that ACP has in place with foreign publishers would have been tied to the business, making an assets-only buyout troublesome.
Richard Allely, chief executive of PMP, confirmed to ProPrint that the print contract “survives the transaction” with Bauer Media.
“Our contractual relationships with ACP are locked and loaded, not up for negotiation for at least another five years and there is another option at the end of that for another two, so we have built in a seven-year relationship with the publisher,” said Allely.
While admitting he is not close to the ACP-Bauer deal, he was positive about what it represents. “From my understanding, they are committed publishers and what comes with that commitment is a capability and understanding of what it takes to be successful in publishing, not just quality content but being able to market and manage that enterprise. We are over the moon,” said Allely.
Cost control
The Bauers will be well versed in the cost of print production, not only as publishers but as printers in their own right. The company owns three plants in Europe: a 190-staff web offset business in Germany that consumes 42,000 tonnes of paper a year, and two gravure plants, one each in Germany and Poland that employ a combined total of nearly 900 workers and chew through 230,000 tonnes of paper per year.
Allely said: “I suspect that any buyer of a company would look to their supply chain for savings but once they have close examination of the contract that exists between ACP and PMP – and I imagine they did that in due diligence – they would realise they better look elsewhere to squeeze further margin.”
He added that other suppliers might not be quite as fortunate. “I can image if you are not as locked in as PMP you may have some exposure.”
As a global paper buyer, Bauer Media could be expected to strike competitive deals on a worldwide scale. Certainly the print company sources that ProPrint spoke to expected this to be the case. But the unnamed paper boss said Bauer might struggle because “Australia and New Zealand are already buying far more competitively than Germany”.
He suggested ACP was already purchasing “as sharp as you can buy”.
In the short-term, there is more to be concerned about than the price of paper. When announced, Bauer and ACP said they expected the deal to complete within four to eight weeks. Between then and now, there is still plenty of scope for disruptions and even the possibility the whole thing could go off the rails.
At time of writing, the situation at parent NEC had reached crisis point. The group’s financial backers were in a stand-off. Debt holders Goldman Sachs was at odds with senior lenders Oaktree Capital and Apollo Global Management over how best to restructure the group, which is in a countdown to a potential breach of covenants over billions in debt.
It is unclear how this situation will play out, with some suggesting receivership is on the cards. How or if this would affect the ACP-Bauer deal is unknown.
But if things go according to plan, the Bauer deal will complete by November. The view that the deal is a good thing for magazines generally is shared even by ACP’s fiercest rivals. Nick Chan, chief executive of Pacific Magazines, owned by Seven West Media, told The Australian:
“I think the good thing is that an external party that knows [the industry] recognises the value of magazines.”
Ramping up: Magazine Publishers of Australia
Last month, the Magazine Publishers of Australia (MPA), which represents the ‘big three’ – ACP, Pacific and News Life Media – got a major kickstart with the a of new exec-utive director Robin Parkes. She has just completed her three-year con-tract as the inaugural chief executive of Freeview, experience that seems immediately transferable to the MPA.
She told ProPrint that her experience at Freeview was that major players were prepared to put their differences aside for the good of the sector. “While they will be commercially competitive, as an industry they come together and address commonalities.
Parkes has been tasked with improving magazines’ reputation among media buyers as well as the reading public.
“Magazines increase purchase intent; you have readers in an engaged state indulging themselves in their favourite interests, therefore, magazines are not disruptive or annoying but are highly relevant and personal.”
Parkes said her appointment came at an ideal time, considering Bauer’s confidence move. “They must have good belief in the magazine industry in Australia to be buying the business.”
BACKGROUND BRIEFING
• CVC Capital Partners and CVC Asia Pacific spent $5.5 billion in 2006-08 to buy Publishing and Broadcasting Limited from James Packer, son of the late, great Kerry Packer
• PBL comprised the Nine Network, ACP Magazines, a 50% stake in ninemsn and a 41% stake in carsales.com.au
• PBL was rebranded Nine Entertainment Co (NEC) in 2010
• ACP is the largest magazine publisher in Australia, with magazines such as Women’s Weekly, Cosmopolitan, Woman’s Day and TV Week
• The squeeze on the advertising market and retail sector has seen revenues decline at ACP
• ACP, along with parent company NEC, has been struggling to deliver the necessary returns to pay off the debt that funded the buyout from Packer, which is shared between Goldman Sachs and hedge funds Apollo and Oaktree
• In early 2012, the Australian Financial Review reported that CVC was hoping to get up to $800m for ACP
• On 4 September, ACP revealed it was being acquired by €2 billion German-owned Bauer Media. The price has been widely reported as over $500 million
• In the current climate and based on ACP’s performance, the price has been largely hailed as a vote of confidence
• Bauer is one of the world’s largest publishers, with interests in Germany, the UK and across Europe
• In 2008, Bauer acquired the consumer magazine division of Emap in the UK for £1 billion. Emap’s Australian division had been acquired by ACP in 2007
• PMP supplies the majority of ACP’s Australian printing. ACP’s New Zealand magazines are printed at Blue Star division Webstar’s Auckland plant
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