Bauer Media Australia, the Sydney-based subsidiary of the privately-owned German magazines-radio group, is (after years of flirting) finally acquiring its principal competitor Pacific Magazines from the troubled broadcaster Seven West Media, controlled by Kerry Stokes. The price of A$46.6m (A$40m cash and $6.6m of advertising in Bauer magazines), is said to be 5.5 x EBITDA for 2019.
Pacific’s key brands are Better Homes & Gardens, New Idea, Who, Marie Claire, and That’s Life!, all of which compete directly with Bauer magazines. The combined company will be the completely dominant Aussie publisher with 50 brands and an estimated market share of some 60%. But it’s only magazines…
The fact that many observers expect the ACCC regulator to waive the deal through underlines how relatively unimportant the magazine market has become in an advertising and lifestyle market dominated by Facebook and Google. But ACCC may be yet be more concerned about maintaining the competition for Aussie magazine readers.
Magazines have long punched above their weight in Australia. The country’s largest publisher (ACP, now Bauer) often made larger profits than its UK counterpart, the former IPC Media. The success was reflected by magazines like Woman’s Day and Australian Women’s Weekly each with 1m copy sales in a market that then comprised only 8m women. The Australian Cosmopolitan once made higher profit margins than any of the US magazine’s 50+ worldwide editions.
Even when digital disruption started to squeeze magazine advertising and sales across the world, the then ACP Magazines seemed able to keep growing at the expense of competitors – like Pacific. Two key developments changed everything.
First was the 2005 death of the legendary Kerry Packer whose deal-making had hugely expanded the TV and magazines group he inherited from his father 30 years before. Kerry had once seemed to be a mere disciple of his father but gambling big on TV sports rights, digital and magazine deals transformed his media (and also casino) business during the last quarter of the twentieth century.
Surprisingly, his son James proved to be even more radical and surprised family members and shareholders alike by selling most of his media inheritance within 12 months of his father’s death. The A$5.3bn deal proved to be an inspired move at a top of the market price, at the expense of a private equity boss who got carried away by the idea of becoming an Aussie media owner alongside Packer, Murdoch, and Stokes.
Then, seven years later after cuts, closures and a collapse of confidence in the Aussie magazine market and its long-time leader, along came Bauer. The German company bought ACP Magazines for A$500m in 2012. Although ACP was no longer making the A$250m+ profits of its heyday, the Bauer family bought the forecasts of A$100m. In the event, they got nothing like that.
The whole Australian venture has been a nightmare for the so-private company that (although it moved gutsily into the US even before launching in the UK in the 1980s) had never operated so far from its Hamburg base. Even before the acquisition of Pacific, Bauer has invested something like A$600m in Australia.
No fewer than six CEOs in nine years and a host of magazine closures (including Cleo, Top Gear, Zoo, Madison, Grazia, Burke’s Backyard, BBC Good Food, FHM and Cosmopolitan) tell the story of a deal that went sour long ago, whatever the unflinching faces of the German owners say in rare public utterances. Tellingly, the 2012 Sydney deal had not been something Bauer had even contemplated just a year before they did it. They had been prompted by London-based executives of the former EMAP magazines and radio business which they had acquired for £1.1bn in 2007.
Their positive experience in the UK had spoiled them. Even though some of the largest magazines like Heat and FHM were over the hill by the time Bauer took over, the company’s special interest magazines were strong and they trusted the former EMAP senior management they had inherited. More than that, the strong UK radio business was growing fast and has since become the motivation for Bauer’s broadcasting growth in Continental Europe and Scandinavia. Radio and music is now the €3bn-revenue Bauer’s fastest-growing business in a group of 600 magazine titles, 400 digital brands and more than 100 broadcasters.
That might lead you to share the speculation that the Pacific deal is a prelude to a much more lucrative exit by Bauer from the Aussie market. Its ultimate withdrawal from Australia has to be a possibility and you won’t be able to find anyone at Bauer who denies it.
But the company has become successful over the longterm by being patient and taking cool, longterm decisions. The Bauer family is seldom in a hurry. Having recently appointed her newest CEO in Sydney, we should expect chair Yvonne Bauer to see how things go. She will be gratified to get regulatory approval for this latest deal (perhaps in a month or so) because it will surely mean that, in a year or two, nobody will object to a ‘merger’ with its last remaining serious rival, News Corp’s Aussie magazine business. She will have options.