Why was no-one willing to pay Emap's fair price?

The City didn’t expect Emap to experience problems selling its B2B portfolio. Offloading the company’s consumer magazines was meant to be the difficult bit.

In the event, Emap sold its consumer magazines and radio stations for a good price to single bidder, Bauer.

But no-one offered the £1.3bn asking price for Emap Communications, which is home to B2B titles such as Retail Week, dozens of trade shows and subscription-based sites such as WSGN.com, the fashion industry portal.

There are several ways of looking at Emap’s pre-Christmas surprise. The most straightforward is to examine the only company that got out its chequebook.

Bauer, a 132-year-old family-owned German company, doesn’t have to answer to pension-fund managers worried about a repeat of Black Monday. Neither does it borrow large amounts of cash from capricious – and equally worried – bankers.

Bidders like Bauer don’t grow on trees.

Emap’s next best alternative were the princelings of private equity.

A myriad of funds – one with Guardian Media Group in tow – spent months sniffing around Emap’s component parts.

Last week, confronted by disappointing B2B bids, Emap told those funds to increase their offers, or see the sale shelved.

One anonymous source told The Times that Emap’s asking price was ‘much higher’than it expected.

At this point, the princelings walked away and Alan Cathcart, Emap’s caretaker chairman, broke the news of a failed sale to roiled investors. The B2B operation, he added, would now carry on as the core of Emap plc.

It’s possible that the private equity bidders were hamstrung by problems raising debt finance. Equally, however, the terrain might just have been unsuitable for a private equity bid.

Emap Communications, which routinely generates 30 per cent operating margins, isn’t a visibly troubled business. Quite possibly, the private equity groups bid low because they couldn’t see how restructuring would allow them to make a quick, and big, return.

So was the £1.3bn asking price unjustifiably steep? By the standards that applied in the City before Friday, it wasn’t. Emap valued its B2B arm at 11 times its forecast earnings for the year to next March. That’s not so different from the valuations attached by investors to its rivals.

Given this, the tricky question is why more trade buyers didn’t come forward.

The behaviour of United Business Media in the month before Emap’s sale may point to a deeper problem for traditional B2B publishers.

Earlier this year, David Levin, UBM’s highly-rated chief executive, was described by a leading City analyst as acting ‘like a cat waiting by [Emap’s] mousehole”.

Then, in November, UBM pointedly announced that it wouldn’t be bidding for Emap.

It emerged that UBM didn’t want the ad-driven trade magazines that generate one-third of Emap’s revenues – but which are in long-term decline.

In UBM’s view, Emap Communications didn’t have enough of the right stuff.

Instead, Levin’s company announced plans to spend £500m over two years buying up databases, subscriber-only content, trade shows and conferences.

At UBM, high-growth activities such as these have already squeezed magazine publishing down to 15 per cent of revenues.

At New Emap, chief executive Derek Carter will almost certainly steer a similar course. Acquisitions are on the agenda.

Meanwhile, by allowing Emap to remain independent, and with the Guardian Media Group still on the prowl, UBM and its rivals are going to feel an increase in competitive pressure.

Further consolidation in the UK B2B publishing market is inevitable. But in the City, the realisation has dawned that this will be a longer game than most anticipated.

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