Public companies usually resemble supertankers, not dinghies. Built for the long haul, they don’t tack relentlessly in search of a fair wind.
So we can take it for granted that Alun Cathcart, executive chairman of Emap, acted in good faith on 7 December when he announced that Emap’s B2B operation would continue to operate as a ‘focused business on a stand-alone basis”.
Only a fortnight later, on 21 December, things looked very different. Belatedly, Apax and GMG agreed to shell out £1bn for Emap’s B2B unit – plus a further £240m to cover the company’s debts and underwrite its pension liabilities.
Why did Cathcart’s supertanker change course?
Some suggest that Emap’s shareholders – angry at the failed sell-off – forced the company back into negotiations with Apax and Guardian Media Group.
More credibly, others suggest that Emap’s suitors simply improved their offer.
Plenty could happen between now and April, when the acquisition is scheduled to close.
Clearly, Apax and GMG are also worried about rival bids. This explains why they parked their tanks on Emap’s lawn on Christmas Eve, snaffling up almost 20 per cent of the company’s shares on the open market.
If the bid succeeds, Apax will probably merge part, or all, of Emap’s B2B unit with Incisive Media, which it bought from City investors in 2006 and took private. The result would be a B2B powerhouse turning over some £550m a year.
With the aid of a few bolt-on acquisitions, that’s big enough to start challenging senior players like Informa (which should bring in £1.1bn this year) and United Business Media (£786m revenue).
In the short term, sources close to Incisive-Apax-GMG are talking about stripping out £15m-£20m of costs from the merged company.
Back office functions, like accounts will be rationalised, staff will be relocated, IT systems will be scrutinised, and suppliers of print and paper will be asked to cut their prices in return for bigger orders.
But the most far-reaching effects of this deal could yet centre on Guardian Media Group.
In March, GMG sold off a 49.9 per cent stake in Trader Media to Apax for £675m.
Separately, GMG is expected to hold a 30 per cent stake in the enlarged group that would be created by the merger.
Of course, GMG has relied for a long time on less-than-glamorous side investments to finance its loss-making national newspapers.
Now, however, it has become the junior partner in a heavyweight partnership with one of the UK’s leading private equity houses. In revenue terms, the venture’s pooled assets are twice the size of GMG’s newspaper and radio holdings, which generate just £400m a year.
The irony of this won’t be lost on the likes of Guardian columnist Polly Toynbee, who has accused private equity firms of ‘short-term gambling’and ‘pernicious buccaneering”.
But this isn’t exactly a tryst between Cap’n Jack Sparrow and Elizabeth Swann.
It’s more prosaic than that. By buying into Emap, GMG is effectively pouring several hundred thousands of pounds into a building society account overseen by Stephen Grabiner, the former Telegraph Newspapers boss who currently runs Apax’s media investments. Except that this isn’t just any old building society account.
For one thing, investing alongside Apax probably wouldn’t have been possible if GMG was a regular quoted company. (In their infinite wisdom, City investors aren’t keen on chief executives making passive investments.)
But Apax has been ploughing its furrow successfully for the past 35 years. Meanwhile, Emap’s B2B assets are made of solid stuff, and Incisive itself is a well-regarded company. The combination is destined to do well on its return to the public markets.
No doubt Carolyn McCall, chief executive of GMG, will need to respond to talk about piratical gambling during her next encounter with Toynbee.
The task should be made marginally easier by the fact that this deal offers a fat – and near-guaranteed – return for the Scott Trust and the national papers it exists to protect.