Magazines group Future Plc made losses of £7m in 2014, the year its CEO was appointed. Last year, the 35-year-old specpub made £52m operating profit and is now valued at £1.4bn – a p.e. of 160x . The dizzy rating reflects Zillah Byng-Thorne’s six-year success in energetically extracting value from a succession of UK and US acquisitions, with strong management, culture, and technology. It also reflects the promise of her biggest deal yet, Future’s agreed £140m bid for TI Media which would create the UK’s largest magazines group.
But the deal might be wobbling a bit with this week’s announcement from the UK Competition & Markets Authority (CMA). The acquisition had been been expected to complete “early in 2020”. But the CMA now has until 16 March to decide whether the £400m-revenue combination “may be expected to result in a substantial lessening of competition”. If it does, there will be a full-blown investigation.
Regulators threaten deals
It seems almost too obvious that the acquisition will reduce the competition in magazines. The real argument for consolidation is that magazines are one small (and shrinking) part of media and entertainment for readers and advertisers. But the CMA’s warning comes a month after its Australian counterpart, the Australian Competition & Consumer Commission (ACCC), issued a similar warning about Bauer’s bid for Pacific Magazines, its main Sydney-based rival. The ACCC seemed unimpressed by Bauer’s claim that “More than ever, scale and superior content is emerging as the differentiator of success in publishing.”
In Australia, the Bauer-Pacific would have a 60% of the magazine market (much more, by any measure, than Future-TI in the UK). But the proposed UK and Aussie deals are both being challenged by an archaic view of the media landscape, even though Australia’s largest TV network was last year permitted to swallow up a leading newspaper and radio group. The magazine publishers must now either persuade their respective regulators to change their view of the viability of print-centric media – or be forced to abandon their plans. They haven’t got long.
Future’s acquisition agreement with TI Media owner Epiris private equity will lapse if it’s not completed in June. Since a CMA investigation could take at least six months, this next few weeks might be make-or-break for the deal.
Byng-Thorne, who has already been discussing possible magazine sales in sectors where Future and TI overlap, seems unlikely to leave it to chance. One clue might be her assertion that the acquisition would produce a “super-force of specialist media”. Indeed, her original justification for the bid trumpeted the benefits of adding three new “verticals” to Future’s portfolio: lifestyle, women’s interest, and sport.
Both statements are notable for their omission of TV listing magazines, even though these may account for 40% of TI’s £30m EBITDA. The 770k-circulation What’s on TV and the 140k TV Times compete with Bauer and Immediate Media in a highly-profitable UK magazine sector which refuses to die, despite the profusion of newspaper supplements and electronic programme guides. The TV listings and also TI’s four ageing women’s weeklies (which themselves have an aggregate 600k circulation) must be the magazines Future least wants to publish. Ironically, they are the large circulation brands which may now be most likely to obstruct the acquisition.
Selling off the big brands?
That’s why Future may already have made plans for their divestment, in order to concentrate on the specialist brands which offer clear growth opportunities in digital, events and globally. That three-word menu for Future’s post-acquisition expansion cannot conceivably apply to the mature world of TV listings and women’s weeklies, so a sell-off (at some point) has always seemed likely. It may now be a priority.
The obvious potential buyer is the Daily Mail Group (DMGT) which is believed to have been interested in acquiring TI Media itself before Future swooped. The female-skewed Daily Mail (whose editor-in-chief was a longtime magazine publisher) would find ways to rejuvenate at least some of the women’s weeklies (including perhaps as circulating-boosting newspaper supplements). Ultimately, it could help DMGT to develop ‘pick and mix’ digital subscriptions for Mail readers who might, for example, want more women’s interest content and less sport or politics. Or vice versa. The Mail might also have digital plans for TV listings and for accelerating its e-commerce.
The news publisher, which this week underwhelmed investors with a steady but low-growth profit forecast, has been looking for ways to spend the cash pile from its B2B divestments. Its recent £50m acquisition of the i tabloid and the development of Mail Plus ‘online TV’ has signalled its ambition to expand further in consumer media after years of leaning towards B2B information services and events.
A DMGT deal to buy the TI listings and women’s weeklies for, say, £70m could be a 5 x EBITDA multiple, similar to the i. It could also be good for Future which would have acquired some £140m of TI Media revenue for a net price of £70m. It might also be able to secure most of its targeted £15m of annual cost synergies, and could then get on with injecting new growth into the specialist media it loves. Will they do it?