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| Passion Investments: Media |
Moguls in the Making
Bryant Urstadt
07/01/2005
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In 1997, consultant David
Bradley purchased the National Journal, a nonpartisan magazine catering to
Washington insiders, that publishes advance notice of FCC hearings and first
looks at the FDA docket. It is too specialized for widespread consumption, but
many inside-the-Beltway readers find it indispensable. “The Journal is stable
and successful,” Bradley claims. Though he refuses to reveal exactly how
successful, he says that it “grows handsomely.”
 Publications will have to
grow handsomely indeed if they are to justify valuations sellers are currently
demanding. According to the mergers and acquisitions trade publication The Deal,
the recent high-priced acquisitions of media groups such as Thomson Media and
Network Communications have pushed the expectations of sellers up significantly,
making it difficult to find properties at reasonable prices. The Deal reports
that in two recent auctions, sellers wanted 15 times earnings before interest,
taxes, depreciation and amortization (EBITDA), while buyers did not want to bid
above 12 times. In fact, even this bid is significantly higher than traditional
levels—say, eight to 10 times EBITDA. Banks are facilitating higher valuations
by offering to lend buyers a greater multiple of EBITDA for these transactions
than in the past.
Because of the number of well-financed, interested buyers
currently seeking media properties, those who bid for properties at auction are
almost certainly doomed to pay top dollar. Media M&A specialists say
strategies like Bernstein’s—approaching an owner privately and negotiating a
bilateral deal—usually result in a much better outcome for the buyer than
bidding in an auction.
 Another option is to begin with a clean slate.
Investors looking to exploit an underserved niche in the print media often
consider starting their own magazine. In 1981, David Bunnell decided to launch a
magazine devoted exclusively to a product just released by IBM: the personal
computer. Today PC Magazine claims 5.1 million readers and, as the flagship of
Ziff Davis Media, commands more than $70,000 for a single full-page, four-color
ad. Bunnell, of course, is the exception. Even in today’s flush private equity
market, would-be publishers find it difficult to obtain start-up capital. “We
try not to get involved in start-ups,” Garrett admits. “It’s enormously
expensive. It’s enormously time-consuming. And it can be a great way to waste a
lot of money.” Reed Phillips of DeSilva & Phillips, a media investment bank
in New York, agrees. Phillips considers deals based on start-ups “as
infrequently as possible.”
Social Circles
Owners sometimes act as relatively silent partners, but
most find that their new projects absorb the lion’s share of their time. In
addition to the National Journal, Bradley purchased the Atlantic Monthly in 1999
for about $12 million. “I could spend less than a day a month on the
National Journal properties,” he says. “But I work full-time on the Atlantic.
I’ve had 250 meetings with advertisers alone. I have had hundreds of meetings
with writers and readers since I bought the magazine. I even write our ad
brochures. Doing it—and not even really succeeding at it—takes all of my
time.”
Mort Zuckerman purchased a majority stake in Fast Company in 1995 for
$20 million. The magazine became a boon for Zuckerman, making money along the
way leading to its sale to media giant Gruner + Jahr in 2000 for upward of $360
million. But Zuckerman has not enjoyed such luck with U.S. News & World
Report or the New York Daily News—nor the Atlantic Monthly, which he sold to
Bradley in 1999 after losing millions. Of course, Zuckerman’s publications
provide him with an invaluable entrée into both the Washington political scene
and New York social circles.
As an investment, the Atlantic Monthly is
costing Bradley an estimated $5 million a year. (In an attempt to shave costs,
he recently announced plans to move the magazine from Boston, its home for the
last century and a half, to Washington, D.C.) As a social feather in one’s cap,
however, the former editorial abode of Mark Twain and Henry David Thoreau is
priceless. “There are a few presumptions people seem to have about magazine
owners,” Bradley says, tongue in cheek. “There’s a presumption of intelligence
about the owner that goes deeply beyond the actual merits of the position.” He
admits, too, that other people seem to inflate his social prowess, as well. “But
I haven’t been invited to any special parties,” he points out. “Strangely, I did
get a Christmas card from Jimmy and Rosalyn Carter, although I’ve never met
them. I guess that was nice. The valets, though, certainly don’t deliver my car
any faster.”
Bryant Urstadt has written for Harper’s and the New York Times. urstadt@sbcglobal.net
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