It’s about Time – June 2014 M&A Activity
The newest old company, Time Inc., was very busy in June. The venerable publisher of magazines, including household names such as Time, Fortune, People, and Sports Illustrated, was spun off from Time Warner, separating the aging print-centric parent from its progeny’s profitable entertainment and programming businesses. As its retirement gift, the new Time Inc. has been saddled with $1.3 billion of debt, as well as responsibility for a group of underperforming British magazines. With more than 90 titles in print, Time Inc. is challenged by the continuing and steady decline in magazine circulation which in turn has driven revenue down for 22 of the last 24 quarters.
Prompted by Time Inc.’s decision to cut off shipment of its magazines, magazine wholesaler Source Interlink Distribution filed Chapter 11 bankruptcy in June, announcing that the company will cease operations. Time Inc. apparently had good reason to withhold further shipments, reporting that it will be unable to collect $26 million due from Source Interlink. As Time Inc. switches to another distributor, it will likely lose sales and possibly readership loyalty as its newsstand slots sit empty for up to 12 weeks.
Time Inc. wasted no time in diversifying away from the legacy print business, announcing on June 2nd that it was acquiring Cozi. The Seattle-based company is a purely digital company that offers a mobile app and website that families use to coordinate shopping, schedules and to-do lists. No print involved.
Time Inc. wrapped up the month by divesting its Latin-American subsidiary, magazine publisher Grupo Expansión. Headquartered in Mexico City, with 16 titles in print, the company was purchased by Southern Cross Group, a private equity firm with investments throughout Central and South America.
In my recent article in NAPL’s new publication, Bottom Line, “M&A: Still a Buyer's Market?” I postulated that the market for commercial printing companies is improving and smart buyers with well-defined strategies are returning to the market, and that we may be at an inflection point between a buyer’s and seller’s market. Recent transactions suggest that acquirers of companies in the commercial printing segment may be less reliant on the “tuck-in” growth strategy, in which a healthy commercial printer picks up the sales of a distressed printer on a pure earnout basis, leaving the seller to close down operations and sell off the excess equipment.