MarketingSherpa Blog

A ContentBiz reader just wrote in, “When any of the big traditional publishers purchase companies, what kind of valuation metrics do you they typically like to use? Multiples of cash flow? xxx??”

It’s a question that comes up a lot, so here’s a quick down ‘n’ dirty answer:

Periodical publishing companies (newsletters, magazines, ezines, contentsites) typically sell for one to three times their annual gross revenues. So if you grossed a million last year, you could sell for one-three million. In boom times this can go as high as five times annual revenues. Veronis Suhler, a merchant bank to the media industry (which they call the “communications industry” even though they’re not talking about telcom) publishes an annual guide to these valuations for a lot of money, but you can usually wheedle a free copy if you know a client, or are considering becoming one.

The actual deal points are where it gets tricky. The buyer almost never ever pays that cash in a lump sum up-front. Their goal is to pay as little cash up front as they can get away with, and make the rest stock and/or contingent on your pub’s future sales.

Which means the seller is crossing their fingers hoping the buyer really is FABULOUS at marketing so the pub continues to grow and make them money. Often a seller will promise “Oh we’re going to put our weight behind this pub and make it huge, and you’ll get a cut of this if you sell to us now.” But then as the economy or their internal biz plans change, anything can happen.

Also beware accepting a percent of EBITDA (earnings before tax and interest) because the buyer can fiddle the books to take out all sorts of expenses before they get to the amount they give you a slice of. It’s the old Hollywood scam — the movie made zillions at the box office, but never showed a profit for investors.

ALWAYS talk to other companies the buyer has negotiated with in the past, to find out what they’re really like when the chips are down. Often the buyer that wins is not the buyer who offers the highest price. Cultural fit, marketing promises, product line fit, the buyer’s passion for your product, ego stroking, etc., all affect selling decisions.

When you decide it’s time to sell, first put together an “offering package” (aka “a black book”) with the following
information:
– history of the publication
– total market size
– circulation/ traffic
– renewal rates if relevant
– marketing tactics used
– financials for past three years
– worst-case scenario cash flow projections for next year

You can hire a broker to shop the offering for you. Generally they’ll get 5-10% of the price as a commission (the smaller you are, the higher it will be to make it worth their time.) Contact the folks at the Newsletters & Electronic Publisher’s Association or American Business Media to get a list of brokers’ names who handle deals like yours.

http://www.veronissuhler.com
http://www.newsletters.org http://www.americanbusinessmedia.com

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