Approval of Future Plc’s acquisition of TI Media by the UK Competitions & Markets Authority (CMA) is expected next week. A decision not to refer the deal for lengthy investigation is believed to be subject only to a requirement for Future to dispose of some brands from within the cycling, shooting, photography and homecare sectors in which both companies publish magazines.
The £140m deal brings together the UK magazine-media market’s two largest players to produce a £400m-revenue group. The expanded Future will be almost twice the size of the number 2 player, Immediate Media. But more than 60% of Future’s current revenue comes from outside the UK (principally the US).
Approval of the acquisition has been advocated on the basis that, both for readers and advertisers, magazines represent a tiny fraction of the available sources of information, entertainment and promotion. In essence, magazines are not really a “market” at all.
While the magazine disposals required by the CMA may, inevitably, imply a slightly higher cost (or lower prospective revenue) for Future, none of the divested brands will be among the largest TI profitmakers. Even as forced sellers, they won’t upset the financials for the £1.2bn Future whose share price has fluctuated by up to 18% in the past month (after increasing by no less than 200% in 2019). The wobble has been partly due to fears the deal would be blocked and partly to concern that Future’s explosive growth cannot be sustained. A short-seller has been sniping at the company.
In practice, the TI Media deal is a relatively low price (5 x adjusted EBITDA for 2018) given the synergies for Future. But one challenge for the buyer will be managing the potentially high reorganisation and redundancy costs which year-after-year have wiped out much of TI’s operating profit. It’s the biggest test so far for Future’s CEO Zillah Byng-Thorne.
Meanwhile in Australia
Approval of the Future acquisition of TI Media will be closely followed by the Australian Competition & Consumer Commission which is considering whether to wave through Bauer Media’s acquisition of Pacific Magazines. This proposed deal has been complicated by on-off reports that Bauer itself had negotiated the sale of its Sydney-based magazines group. It is believed that the ACCC’s review of the “impact of the proposed acquisition of content including photographs” was prompted by Getty Images which has substantial trading with both publishers.
Although the Bauer-Pacific deal would (as in the UK) combine the market’s two magazine leaders with plenty of competing brands, the prime differences are: the Sydney-based acquisition includes almost all Australia’s most profitable weekly and monthly magazines; and both companies are financially stable. ACCC is expected to deliver its verdict by 16 March. Whether the deal goes ahead or not, Bauer is still expected to divest its Aussie subsidiary (bought in 2012) in the next 12-18 months.