Targeted Acquisitions Changing Publishing Model
Giant publishers such as Hearst and Meredith are foregoing expansion by building in-house tangential departments (such as digital, mobile and marketing services) from the ground up and are, instead, target purchasing already established peripheral companies with the needed expertise.
They are doing so to play catch up with a marketplace that is moving faster than organic growth can keep pace with.
Who is buying who and what, when, and for what purpose and at what cost, and what’s exactly behind the deals is detailed by Bill Mickey, Editor of FOLIO magazine:
How big publishers like Meredith and Hearst are expanding operations, hedging against print advertising and transforming the traditional publishing model through targeted acquisitions.
Acquisitions allow companies to make rapid changes to their corporate structure and are often a way to play catch-up with a marketplace that’s moving faster than organic growth can keep up. The call for diversification has been going on quite a while now and it’s no big secret that print advertising, by itself, is incapable of the scale publishers need to survive. Accordingly, publishers have been acquiring companies with surgical precision that allow them to quickly enter a market that’s tangential to magazine publishing, but far enough outside their wheelhouse to be considered nontraditional—digital, mobile, marketing services, for example. And as these acquisitions are being made, the model of magazine publishing itself is being changed. And we wanted to look at how these deals not only change the buyer, but the seller too, and what this means for an industry that once only had one thing to do: Print magazines.
Two companies have historically been singled out for making key acquisitions that have, along with continuing to build out and expand their core media expertise, quickly given them significant market share in marketing spending outside of print—Meredith and Hearst. Here, we dive into their key acquisitions to see how the companies have changed as a result, the value that’s being created, and how the companies they acquired have also changed.
The Shift From Offline to Online
Nothing has inspired the necessity to chase nontraditional deals than the rapid shift of marketing dollars from print to digital channels. And now, even digital has fractured into social, mobile and search marketing spending, to name a few. Meredith was one publisher that recognized this relatively early and in the last 5 years has spent roughly $110 million on six companies to form its Meredith Xcelerated Marketing Group (MXM).
The group is kind of like an in-house advertising and marketing agency that allows Meredith to offer marketing services way beyond what its core media brands can offer by themselves. Yet having those media brands in close proximity to these new services allows for tremendous leverage and scale for the acquired companies as well.
Meredith had been offering “custom publishing” services to the tune of $75 million in annual revenue for 35 years before MXM, but the market was quickly changing in ways that print-centered custom solutions could no longer support. It was time to start buying, and fast.
“It became clear to us that the marketing dollars would start moving from offline to online,” says John Zieser, chief development officer and general counsel for Meredith Corporation. “We knew we needed these competencies and it was better to acquire them for a few key reasons: We needed them, the market was moving quickly, we had to get to market. In our minds it was better to buy businesses that had a track record of serving clients.”
Bootstrapping Is Too Slow
With the market changing so quickly and with huge accounts in the balance, Zieser and the rest of the executive team weighed the risks of a bootstrapping, entrepreneurial approach versus buying established expertise with an existing track record. “It’s really about how do you focus on delivering these competencies to our clients in a top-quality way?” he says. “If you find the right target, that’s a much more intelligent approach in our world, which is moving quickly. To me, as a corporate executive, it’s a lot less risky approach than trying to start something from scratch and putting it front of a Nestlé or Kraft and hoping it all works.”
Impacting the Traditional Model
While MXM operates as its own group, now making about $300 million in annual revenues (a far cry from Meredith’s custom publishing days), it has also had an impact on Meredith’s National Media group as well. The various companies that make up MXM now have a deep well of mass media-branded content to draw from and support their marketing services, and Meredith’s brands benefit from having a cutting-edge agency within arm’s reach. “Having cutting-edge marketing services is very useful—we often have National Media people sit in with pitches. We’ve also developed a profile of a company that is much more attractive to our clients than if we were to just stay in our traditional publishing role, there’s a halo effect as a result of these development activities,” says Zieser.
A unit within the National Media group, called Meredith 360, made up of executives attached to the big, national clients, also meets regularly with MXM and keeps them apprised on the strategic needs of the larger accounts. “It’s a useful pipeline to understand what our clients are looking for outside of traditional advertising,” adds Zieser.
Now, integrated marketing programs can run $1 million to $2 million per discipline (mobile, digital, social, etc.), but can run upwards of $10 million for a 12-month program across them all, some much higher.
In forming MXM, Meredith had a tight line to walk as each company was gradually integrated into the group and the company as a whole. In all cases, Meredith acquired entrepreneurial-run operations that were on the verge of stepping up to the next level and needed a bigger partner to make that happen. The owners didn’t want to totally liquidate and exit, and most of the deals were built on three-year earn-out models to keep the primary shareholders motivated and incentivized.
Nevertheless, the acquired brands had standalone value, and integrating them into the mothership too quickly could dilute that value. “We were very careful. These businesses are people businesses that have intellectual property—it’s human capital and expertise in that particular discipline. We were very careful about not integrating those businesses too quickly and not jeopardizing what made them special. But we were integrated from a revenue perspective very quickly,” says Zieser.
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