Mr. Magazine

Magazines today are not worth what they once were. This is a simple, cold, hard fact based on magazine valuations, whose high-water mark was between 1985 and 2007. This has been followed by a steep decline due to many factors: the growth of internet brands, the disruption of the business model, and the recession of 2008. Reed Phillips, CEO & Managing Partner of DeSilva+Phillips, investment bankers, joined the Magazine Innovation Center’s Act 7 to talk about the consequences of this devaluation and what publishers can do about it.

Phillips has been, for the past 26 years, an investment banker specializing in magazines. Before that he was a magazine publisher himself. It makes him uniquely suited to conduct the roughly 300 transactions, valued at $11 billion, that he has conducted over those years. Selling magazines is what he does.

Business Week, Phillips said, walking the audience through the new landscape of media sales, sold to Bloomberg in 2009 for less than $5 million; 10 years earlier it had rejected a $1 billion offer. Today, Time Inc. is worth less than Vice Media—it has a market cap of $3.2 billion with lower buyer interest, where Vice has been valued at $4 billion. Active Interest Media, going on the block, sold their events, but failed to sell their magazines.

Investors, Phillips explained, are no longer attracted to magazines. They are, skeptical of ad revenues, and they prefer predictable cash flows like software and data centers. Likewise, media companies are reluctant to acquire more magazines, which they see as a drag on their valuations. Today magazines are valued at 4 to 6 times EBITA, roughly half of what they were ten years ago.

Naturally, this makes it harder to sell a magazine. There are things that a publisher can do to improve the prospects for a sale, however. Just as you’d dress up a house before putting it on the market, it’s important to dress up your business, starting the process about a year ahead of time. Use your assets to make the product look less like a magazine, more like a media company, of which the magazine is only one part. Offer potential buyers a company with revenues less dependent on advertising, product lines showing growth to offset magazine declines; and the creation of new businesses from the magazine’s assets. In short, the magazine shouldn’t be the main attraction in the sale, it’s a spoke on the wheel, around a customer-centric hub.

A company without existing litigation, whose owners are in agreement about the sale, whose management team is willing or contractually obligated to stay in place, whose product, both online and offline have been refreshed and updated, whose physical offices also have been refreshed, is more likely to find a buyer.

To ensure success, get expert help from an investment banker and, lawyers. Screen them: have they done similar deals? And remember this: it’s up to you to create the value now and offer it as part of the sale. If you don’t do it, and cash in on it, the buyer will do it afterwards.