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The departure of Stephen Grabiner from APAX is hardly a surprise. Bright, able and very ambitious, notwithstanding when your job is to make money from media investments and you lose most of it the axe is bound to fall. Apax bought both Incisive Media and EMAP (the latter in partnership with GMG). Both businesses, although horribly damaged by the economy and an overdependence on print, remain profitable but neither have been able to climb the mountain of debt that was used to fund their purchase.
Emap is arguably stronger than Incisive. It has a much bigger events business, is the more profitable and although the value of shareholder equity has been largely written off, has not had to give control to the banks.
With Carolyn McCall leaving GMG to join Easyjet, Grabiner exiting APAX there is hardly anyone left who can remember what the rationale for these deals was. Emap was supposed to be geting a cash injection to fund acquisistions. With large losses at GMG and no Grabiner at APAX how likely is that to happen?
To grow out of the problem requires great bravery. Will we see Emap and Incisive reviewing their assets, closing some and selling others? Or will both businesses struggle manfully under the debt but never really get anywhere.
In an extraordinary interview given to The Times, Incisive Media CEO Tim Weller claims he has found his recent debt for equity deal crisis a humbling experience. Humble! In the interview the copy brags about his Aston Martin, his ski chalet and his £11m in the bank.
His erstwhile owners (who still have stake in his business), Apax, are derided by Weller for bringing no operational understanding to his business. We are glad to be shot of private equity, he says.
He claims that the level of debt was never discussed at board meetings! Isn't the Chief Executive responsible for everything? Why didn't Weller put the debt issue on the agenda. If I were running a debt laden business, I doubt I would discuss much else.
Anyway, it's nothing to do with him. Not my fault guv. I paraphrase here, but he says, "Apax showed me one slide that debt was a good thing. It seemed ok to me so I thought no more about it."
Oh come on. Weller was desperate to get off the public market. He personally made a fortune as the business went private. Now the banks have lost their shirt, Apax have lost almost everything (in the Uk business at least), and the ceo says, depsite the fact that he blames PE for all his businesses woes, he'd do a private equity deal again because he got what he wanted out of it. You can almost hear the rush of private equity feet queing up to get some of that action.
I should think there are some lids blowing off the heads of APAX execs.
Meanwhile in another interview with Paid Content, Weller says all is well with the business and he doesn't need to make any more cost cuts oe sell off any assets. Yeah right. I wonder if the banks agree with that. They won't be interested in growth and aggressive expansion. They just want some of their money back.
There are moments when bumptiousness and larger than life straight talking can serve you well, but when you have laid off hundreds of staff, supervised the loss of your shareholders money, and the lenders have taken a big haircut, it's probably a good idea to go to work in the Mondeo rather than bragging about the Aston and the Ski chalet and to exude a bit of genuine humility.
And finally, one article reports that Helen Alexander is to be Chairman. That would be odd. The banks will want the chairman to be on their side, to hold the CEO to account. Helen A did a fantastic job at The Economist, but she is an old mate and admirer of TW's isn't she?
After very lengthy negotiations with the banks who funded the growth and MBO of Incisive Media it looks as though a conclusion is close.
Ambitions to be a mega business media company, long part of CEO Tim Wellers desire, are over. The business is being split in two. The US business, which includes American Laywer will have seperate management and different ownership from the UK based business, which Weller will continue to run. The debt structure was different in the US and different terms have been agreed.
The US piece will be owned 49% by the banks. IN the UK the debt mountain of around £400m is likely to be halved and in which case private equity owner Apax are all but wiped out. That part of the deal is, we understand, not yet concluded.
In his note to staff last week Weller claims that his business is still operationally profitable.
His only job now, and the only metric the banks will be interested in, is how fast he can repay the remaining debt. This is no small task. The UK business has some very troubled assets. The dependence on legacy print is far too high. The overhead is too large for a sustainable future. Wellers note says that he "cannot wait to get back into the business" and that his business has "leading brands and "a proven strategy". What he doesn't say, is that that his strategy was proven in a world that no longer exists. He needs a new strategy if he is to stand a chance of meeting his banks expectations.
Weller and his team will not be short of things to tackle and his new owners will rightly be harder and more impatient task masters than any his business has had before.
The Independent reported at the weekend that both Incisive Media and Emap, the Apax owned debt laden companies, have improved their profits. As both companies are private, we cannot see the detailed results, but we must surely assume that this is driven by cost savings. Apax will invest a further £20m in Incisive to retain control if they go ahead with a proposed debt for equity swap with lender RBS.
Incisive Media has previously published its results as recommended by the Walker Report. It is late doing so this year. It would look cynical for them not to honour that commitment just because times are tough.
The Sunday Telegraphreports that Ingenious Media has written off its stake in Incisive Media. They were part of the investment fund put together by Apax to do the deal to buy Incisive when it went private. With so many of the large business media companies being in private hands we can't see how bad trading really is. Management at Incisive Media claim the business is still very profitable, but we have to conclude, that Ingenious at least has concluded that the outlook is not great and the mountain of debt is too steep to climb.
We would agree with that view. Incisive will have to do three things. A refinancing/ debt equity swap/injection of funds from Apax is now almost inevitable. Second, like other business media companies, a move to a new low overhead model is now urgent. Waiting for a recovery just will not do. Third, Incisive should consider the sale of some assets - even if not ideal, to focus on a smaller number of core competencies and to pay down some of its debt.
Incisive Media breached its bank covenants in December. With £400m of debt and weakening trading the options are limited. Either Apax will have to inject more capital or there will be a debt for equity swap.
Either way all media businesses with high leverage will be sweating. On smaller deals banks have been prepared simply to rewrite the covenants (for a fee) but on this one, the bank will want to make sure it does nothing to increase its risk exposure.
Meanwhile Centaur reports its revenues have slumped and its share price slumps in harmony to an all time low of 46p - less than half its float price five years ago.
Everybody is now rushing around like headless chickens trying to make it right. But why, we are entitled to ask as shareholders and employees, has it taken so long to wake up and smell the coffee. I have been accused by some correspondents and readers of this blog of being a pessimist. Actually I am not. It just makes me mad as hell that we have left this all so late. We loyal readers of BMB, have seen it coming for two years. But it is not too late. Radical and innovative steps will still pay off. But please don't do the obvious. There was a story yesterday (forgive me I have lost the link) saying that Conde Naste were cutting digital costs to defend print. Duh!
If anybody in B2B thinks thats a good idea send out for the club revolver and do the honourable thing.
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