This report was posted before the announcement today (22 May) that Time Out Group Plc is proposing to raise £45m by way of a private share placing at 35p per share, compared with today’s 39p share price (down 5%). More than half of the new shares will be taken up by Oakley Capital, and around half of the proceeds will be used to pay off the £22.5m owed to it by Time Out.
Time Out is one of the world’s best-known publishing brands. For more than 50 years, it’s been an iconic guide to the food, drink and culture of many of the world’s favourite cities. Starting out as a London listings magazine, it expanded its print and digital recommendations to 328 cities cities in 58 countries through a network of wholly-owned companies and licensees.
The relatively small Time Out magazine, which was once almost as much about politics as restaurants and concerts, never seemed likely to achieve the kind of worldwide recognition enjoyed by, say, Vogue. It’s a great story.
The edgy weekly that burst onto the London streets 52 years ago would now be captivated by the activities of its parent company. It was rescued in 2010 by Oakley Capital, controlled by Peter Dubens, a low-profile, tech-focused entrepreneur. His investment in Time Out followed a year when a 23% revenue decline had pushed the magazine into an operating loss of £4.8m. Copy sales had virtually halved in the previous 10 years.
In 2015, it found an unlikely new direction by turning a historic Lisbon market into a stunning food hall which brought together “the best of the city under one roof: its best restaurants, bars and cultural experiences”. By 2018, the Time Out Market had 3.9m visitors, arguably Portugal’s largest tourist attraction.
After false starts with events and e-commerce, it became Time Out’s break-out strategy. In 2016, Dubens sold the sizzle for the IPO: “Since Oakley’s initial investment, Time Out has significantly grown and developed its digital media and e-commerce business, transitioned the magazines to a free print model in key geographies, consolidated the brand ownership by acquiring back the key licensee territories and acquired the Time Out food market in Lisbon.”
The £195m valuation (£1.50 per share) was thought to be low. But it has never got back to the IPO and is currently at just 27% of it. But it was a curious IPO.
Investors were schmoozed with the news that the UK’s best-known fund manager Neil Woodford (who had recently left Invesco Perpetual to set up his own Woodford Investment Management) would be buying 15% of Time Out shares.
It seemed like a ringing endorsement by the savviest investor. His former employer Invesco also bought a 12% shareholding. So, together, Woodford and Invesco (which were both also investors in Oakley itself) scooped up 27% of Time Out shares, a large chunk of the IPO issue. Nobody seemed to mind, even though Oakley had also helped to launch Woodford Investment Management (WIM) itself. It was a neat little circle.
But the good news quickly evaporated. Time Out shares floundered from Day One on AIM, London’s secondary stockmarket. Then, last year, WIM collapsed, losing investors hundreds of millions, including a sideshow £6m in Time Out. Invesco stepped in to buy an additional slice of Time Out shares from the WIM sell-off.
For Time Out Group Plc, which made a £17m share placing to patch-up the balance sheet in October 2019, the investor story has become even more challenging. This month, Mark Barnett (Neil Woodford’s former protégé) was ousted from Invesco after disappointing investment returns – which include 16% of Time Out, now worth £9.7m or 27% of their purchase price.
That’s context for the company whose ambitious food market diversification has been beached by Covid lockdown. Its six, multi-restaurant markets, including the highly-profitable Lisbon, have been temporarily closed, Time Out magazine has been suspended, and digital advertising has fallen sharply. The company has announced new borrowings while it “finalises longer-term funding in response to the impact of the Covid-19 pandemic”.
It is just two months since Time Out hailed 2019 as “an exciting year” during which revenue had increased by 58% to £77.1m and EBITDA losses reduced by 42% to £4.7m. There was euphoria about the the growing success of Lisbon (which attracted 4.1m visitors last year), new markets in Miami, New York, Boston, Chicago, and Montreal and plans for Dubai (2020), London (2021) and Prague (2022). Of the eight Time Out Markets operating in six countries by 2022, five will be owned and operated by Time Out, while those in Montreal, Dubai and Prague will be managed on behalf of independent owners.
The strategy had been articulated in 2018 by CEO Julio Bruno (ex TripAdvisor) who said: “Content is everything we do. The Time Out market, where we serve food and drink, is content; articles and reviews are content; an event is content. So everything is content and everything has curation – whether that’s the journalists or chefs. We display that content digitally, in a market, in a magazine. The magazine is just a platform.”
The city magazine that conquered the world was going to show publishers everywhere how to use a media brand to build a new type of “experiential” business.
But then came Covid.
The virus, which threatens to squash companies across media, advertising, tourism and foodservice, is a perfect storm for Time Out whose entire business has come to a screeching halt. The £60m company says it is seeking longer-term funding in response to the pandemic.
It’s all so different from the magazine’s debut back in 1968. That was the year of the US assassinations of Martin Luther King and Bobby Kennedy, street battles in France, Russian tanks suppressing the Prague Spring, and violent anti-Vietnam war demonstrations in London. The 21-year-old London student Tony Elliott produced the first edition of Time Out from his mother’s kitchen table, on his summer vacation from university.
The magazine started as a fold-up A5 black & white sheet. Elliott himself sold copies for one shilling (5p) on Central London streets. It covered the youth issues of the day including racial equality and police harassment. It featured an “AgitProp” section which listed all the week’s political meetings and demonstrations.
Elliott was fascinated with the underground culture of 1960s London and also the need for reliable information about what was going on in the arts, sports and political activism. Early issues even helped promote illegal “squatting” at prominent London houses. The magazine was an instant success, and the classified ads flooded in.
Time Out swelled to a weekly paid circulation of 110,000. But there were troubles along the way, including a 1981 strike by journalists who walked-out to start a co-operative-owned rival, City Limits, in protest at Elliott’s decision to scrap his policy of paying all journalists the same (yes). That lasted more than a decade, while the well-funded Event magazine (from newly-prominent Richard Branson) closed after just six months.
Time Out gradually shed the politics and grew to become London’s leading lifestyle and listings magazine, then expanded into New York and other locations in the 1990s, as well as publishing best-selling city shopping and eating-out guides around the world. In the 1970s, Condé Nast was reported to have offered some £100m to acquire it. Elliott came to view the US-owned glossy publisher as the perfect partner, the one that got away. But there was no shortage of other suitors including Time Warner, the Daily Mail Group and GMT private equity. Everyone wanted Time Out.
Tony Elliott became a media industry star who led the successful UK campaign to end the long-time restrictions which, unbelievably, had banned the publication of TV listings. Two decades later, he was largely responsible for forcing the State-owned BBC to dispose of its “unfairly competitive” magazine and book publishing after it had expensively acquired the Lonely Planet guides with which Time Out competed directly.
But the magazine’s history has been punctuated by money worries. Somehow, it always had many more plans than cash. Elliott’s flirtation with would-be backers always faced the same obstacle: the founder was determined to remain in sole control. He was a popular, enthusiastic and passionate boss who never quite trusted anyone else with his brainchild. A former colleague once said: “Tony is a suburban cottage industry. He’s essentially a small shopkeeper.”
There had been times when it seemed so different. In 1995, he flew all his 140 London staff to celebrate the launch of the New York edition. He was expansive: “We’ve never had the money to do this until now. In the Eighties, we underwent a lot of expansion, and it’s only in the past four years that we’ve had the right financial people and the right staff to give us the strength to take on something as big as this.”
But, by 2004, the Time Out founder was saying: “The company was started with no money and we’ve traded for 36 years and constantly expanded using profits and bank backing. It’s reached the point when, if we could find the right financial backer, it would make a lot of sense for me to sell between 15-30% of the company to give it some working capital, and so I can take a bit of money out.”
Three years later, Elliott hinted at financial fragility in a newspaper interview: “One of the reasons my salary is so high is so I can service a huge mortgage on my £5m six-bedroom house in St John’s Wood. The plan was to reduce the mortgage by taking dividends out of the company in bite-size chunks over the years, but we’re continuously expanding so I’ve never done that. In the meantime, I end up being the bank guarantor for the business overdrafts because I’ve got such a valuable house, so I have to have it.”
Time Out had a number of profitable years, but the founder seemed unconcerned about the losses in between. And, while the magazine industry started to consolidate in a post-digital world, Elliott clung to his independence. He had always been more interested in journalism than the business itself but made almost all the key decisions.
The result was that the widely-admired company perpetually lacked the funds to support its ambitions. And that was even before digital disruption started to shake the foundations of print media at the turn of the century.
While the magazine had survived an onslaught of listings rivals, the internet caught it flat-footed. Although relatively few print-centric brands can be said – even now – to have successfully conquered the web, Time Out’s listings content made it especially vulnerable to online competition.
The irony is that Tony Elliott was an early buyer of all the latest Apple gadgets, even though his cherished magazine quickly fell behind in technology. Its cash-strapped sites around the world did not even share a common digital platform.
Although the company subsequently built a substantial digital audience, it never had a serious strategy to reduce its dependance on print advertising and copy sales.
The once-golden magazine gradually ran out of options.
In November 2010, Oakley Capital bought 50% of Time Out in a deal which was said to have paid-off Elliott’s corporate and personal debt. It valued the company at just £20m. The founder tried to sound enthusiastic: “I have considered many potential investors over the last seven years to help the brand with the next phase of development and I believe that Oakley Capital, with its entrepreneurial operational focus, will help us with this. I genuinely believe that I have found a real partner for what I expect to be a hugely successful worldwide digital journey.”
Perhaps he really was relieved, having had to raise £3m the previous year to pay down the company’s overdraft. But the 50:50 partnership lasted only six months.
Time Out soon needed more cash and, in exchange, Oakley increased its shareholding to 66%. Tony Elliott had lost control. Before the 2016 IPO, his shareholding had shrunk to 2.6%. He now owns just 1.2% and, having relinquished the chairmanship to Peter Dubens, is a mere non-executive director of the company he created.
Time Out is a media parable. It dared to pioneer an opinionated, youthful magazine style across entertainment listings, lifestyle, classifieds, and the arts across the world. But the financials never quite caught up.
The upshot is that the founder – who had, for so long, been reluctant to reduce his 100% ownership and control – has lost the lot for a small fraction of the millions he once waved away. And, now, the company’s very survival depends primarily on the success not of media but of food markets. But even that part of the plan may be at risk as Peter Dubens explores his financial options.
Time Out’s funding discussions are agonising, simply because of the lack of certainty about when some of the Markets will be able to reopen, and how/when international travel and tourism will recover. The company will need substantially more cash to deliver anything like its existing plan during recession. It may need to trim the strategy and renegotiate some of its deals.
But the refinancing needs also to address the 52% of the company’s 2019 revenue (and more than 60% of the headcount) accounted by the original magazines, digital media and e-commerce business.
Time Out Group’s EBITDA loss of some £4.7m (2018: £8.1m loss) on revenue of £77.1m (£48.8m) included a positive £1.6m from Markets but a £1.8m loss from Media. Corporate costs were an additional £1.9m.
The company unconvincingly talked-up Media’s 1% increase in ad revenue and its 10% digital growth in 2019. It spruiked the supposed publishing growth prospects: “…print remains a key driver of Time Out’s brand awareness and the engagement with the magazines within Time Out Markets has been further positive demonstration of the synergies that exist..” Yeah.
But the non-media growth story is real. The Lisbon Market features 26 of the city’s leading restaurants and 19 bars, shops and kiosks, in its 32k sq ft food court. In 2019, it had adjusted EBITDA of £5.3m (£4.4m) on revenue of £36.8m. It was in great shape – before the virus.
The Time Out Markets model is based on hosting 15-25 kitchens and 2-3 bars, generating 1m covers and EBITDA of £3m. Time Out pays some £10m for the design and build costs and receives a 30% share of all food revenues. The formula is reckoned to be attractive too for restaurant owners which may get 6-10 covers per seat/day compared with, perhaps, three in their own restaurants. Time Out calculates that this should generate 9-17% EBITDA margins for restaurateurs, compared with their customary 3-15%.
In addition, Time Out will receive guaranteed management fees (and no capex required) from the non-owned sites in Montreal, Dubai and Prague.
The sum total of the 11 contracted Time Out Market sites would be 315k sq ft with 7,000 seats and “200 of the world’s most respected chefs” (including 6 Michelin stars). But at least some of those plans must now be in doubt.
It may be hard to find investors prepared to step-up their funding of Time Out as a public company. Peter Dubens (whose companies have a 52% shareholding and have also provided £22.5m of borrowing to Time Out) might now want to take the company private. But there will still need to be changes.
The man who has proved to be one patient investor in Time Out (10 years and counting) may have long contemplated a sharp reduction in the loss-making media activities, as soon as the Markets became profitable. That plan may now be accelerated.
Magazines can provide valuable ‘content marketing’, and digital media can attract large audiences. But, however much the Time Out Group eulogises the role of magazine editors in “curating” the restaurants, it no longer needs to be a publisher. Someone else could take over the magazines and books and help promote the markets. They may even pay for the privilege.
At a time when magazine executives are fighting hard to create new businesses for the future of their once vaunted brands, some will inevitably have to sacrifice legacy media in favour of new growth. That’s an even more painful choice in the era of Covid.
Additional reporting and analysis by consultant Alex DeGroote